Economics and Finance

1908 Submissions

[3] viXra:1908.0331 [pdf] submitted on 2019-08-15 19:02:29

Pricing Financial Derivatives Subject to Multilateral Credit Risk and Collateralization

Authors: Xiao, Tim
Comments: 26 Pages.

This article presents a new model for valuing financial contracts subject to credit risk and collateralization. Examples include the valuation of a credit default swap (CDS) contract that is affected by the trilateral credit risk of the buyer, seller and reference entity. We show that default dependency has a significant impact on asset pricing. In fact, correlated default risk is one of the most pervasive threats in financial markets. We also show that a fully collateralized CDS is not equivalent to a risk-free one. In other words, full collateralization cannot eliminate counterparty risk completely in the CDS market.
Category: Economics and Finance

[2] viXra:1908.0201 [pdf] submitted on 2019-08-10 08:13:31

Incremental Risk Charge Methodology

Authors: Xiao, Tim
Comments: 18 Pages.

The incremental risk charge (IRC) is a new regulatory requirement from the Basel Committee in response to the recent financial crisis. Notably few models for IRC have been developed in the literature. This paper proposes a methodology consisting of two Monte Carlo simulations. The first Monte Carlo simulation simulates default, migration, and concentration in an integrated way. Combining with full re-valuation, the loss distribution at the first liquidity horizon for a subportfolio can be generated. The second Monte Carlo simulation is the random draws based on the constant level of risk assumption. It convolutes the copies of the single loss distribution to produce one year loss distribution. The aggregation of different subportfolios with different liquidity horizons is addressed. Moreover, the methodology for equity is also included, even though it is optional in IRC.
Category: Economics and Finance

[1] viXra:1908.0192 [pdf] replaced on 2019-08-11 22:44:03

Krugmanomics Doesn't Check Out

Authors: Miguel A. Sanchez-Rey
Comments: 3 Pages.

Skepticism and long-term prospect.
Category: Economics and Finance