Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
6874452 | Journal of Computational Science | 2018 | 31 Pages |
Abstract
We consider a structural default model in an interconnected banking network as in [1], with mutual obligations between each pair of banks. We analyse the model numerically for two banks with jumps in their asset value processes. Specifically, we develop a finite difference method for the resulting two-dimensional partial integro-differential equation, and study its stability and consistency. We then compute joint and marginal survival probabilities, as well as prices of credit default swaps (CDS), first-to-default swaps (FTD), Credit and Debt Value Adjustments (CVA and DVA). Finally, we calibrate the model to market data and assess the impact of jump risk.
Keywords
Related Topics
Physical Sciences and Engineering
Computer Science
Computational Theory and Mathematics
Authors
Vadim Kaushansky, Alexander Lipton, Christoph Reisinger,