Counterparty risk and CCDSs under correlation

Damiano Brigo, Andrea Pallavicini
01 Feb 2008

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In this article, we consider counterparty risk for interest rate payouts in the presence of correlation between credit and interest rates. In particular, we analyse counterparty risk (or default risk) interest rate swaps (IRSs) in detail, continuing the work of Sorensen & Bollier (1994), Brigo & Masetti (2006), where no correlation is taken into account, and Brigo & Pallavicini (2007), where the intensity process is considered to be a purely diffusive process.

We also analyse more exotic payouts

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