Risk magazine - Volume19/No4

Wrong way risk modelling

Beyond its potential impact on counterparty risk exposure, the wrong way risk arising in some derivatives transactions raises important modelling challenges. Christian Redon presents two suitable models based on conditional expected exposure. Among…

A structural approach to EDS pricing

Structural credit models have been used to price bothcredit and equity derivatives, making them a naturalframework to price equity default swaps. Using such aframework, Elena Medova and Robert Smith derivean analytic expression for the EDS spread,…

Structural credit calibration

Damiano Brigo and Massimo Morini introduce first-passage models with time-varying volatility and random default barriers, while illustrating their tractability, exact calibration and economic interpretation. The models' behaviour on Parmalat data prior…

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