Journal of Credit Risk

Risk.net

Collateral and credit issues in derivatives pricing

John Hull and Alan White

ABSTRACT

Regulatory changes are increasing the importance of collateral agreements and credit issues in over-the-counter derivatives transactions. This paper considers the nature of derivatives collateral agreements and examines the impact of collateral agreements, two-sided credit risk, funding costs, liquidity and bid-offer spreads on the valuation of derivatives portfolios.


 

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