Chapter 13
Structural Counterparty Risk Valuation for Credit Default Swaps
The valuation of counterparty risk for single-name credit derivatives is often based on reduced models where defaults intensities drive the jump-to-default of the counterparty. Whereas efficient and relatively easy to calibrate to credit default swaps (CDS) spreads and market data, we argue that this approach should be supplemented by the structural approach familiar in multiname credit risk (e.g., in the Gaussian copula models or in many widespread credit portfolios risk assessment tools). We discuss Merton-type structural models for counterparty risk, their advantages, ...
