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Credit Risk Modeling and Implementation
Umeå University, Faculty of Science and Technology, Department of Physics.
2017 (English)Independent thesis Advanced level (degree of Master (Two Years)), 20 credits / 30 HE creditsStudent thesis
Abstract [en]

The financial crisis and the bankruptcy of Lehman Brothers in 2008 lead to harder regulations for the banking industry which included larger capital reserves for the banks. One of the parts that contributed to this increased capital reserve was the the credit valuation adjustment capital charge which can be explained as the market value of the counterparty default risk. The purpose of the credit valuation adjustment capital charge is to capitalize the risk of future changes in the market value of the counterparty default risk. One financial contract that had a key role in the financial crisis was the credit default swap. A credit default swap involves three different parts, a contract seller, a contract buyer and a reference entity. The credit default swap can be seen as an insurance against a credit event, a default for example of the reference entity. This thesis focuses on the study and calculation of the credit valuation adjustment of credit default swaps. The credit valuation adjustment on a credit default swap can be implemented with two different assumptions. In the first case, the seller (buyer) of the contract is assumed to be default risk free and then only the buyer (seller) contributes to the default risk. In the second case, both the seller and the buyer of the contract is assumed to be default risky and therefore, both parts contributes to the default risk.

Abstract [sv]

Finanskrisen och Lehman Brothers konkurs 2008 ledde till hårdare regleringar för banksektorn som bland annat innefattade krav på större kapitalreserver för bankerna. En del som bidrog till denna ökning av kapitalreserverna var kreditvärdighetsjusteringens kapitalkrav som kan förklaras som marknadsvärdet av motpartsrisken. Syftet med kreditvärdighetsjusteringens kapitalkrav är att kapitalisera risken för framtida förändringar i marknadsvärdet av motpartsrisken. Ett derivat som hade en nyckelroll under finanskrisen var kreditswappen. En kreditswap innefattar tre parter, en säljare, en köpare och ett referensföretag. Kreditswappen kan ses som en försäkring mot en kredithändelse, till exempel en konkurs på referensföretaget. Detta arbete fokuserar på studier och beräkningar av kreditvärdesjusteringen på kreditswappar. Kreditvärdesjusteringen på en kreditswap kan implementeras med två olika antaganden. I det första fallet antas säljaren (köparen) vara riskfri och då bidrar bara köparen (säljaren) till konkursrisken. I det andra fallet antas både säljaren och köparen bidra till konkursrisken.

Place, publisher, year, edition, pages
2017. , 50 p.
Keyword [en]
CVA, CDS, hazard rate
National Category
Computational Mathematics
Identifiers
URN: urn:nbn:se:umu:diva-131318OAI: oai:DiVA.org:umu-131318DiVA: diva2:1073566
External cooperation
Cinnober FT
Subject / course
Examensarbete i teknisk fysik
Educational program
Master of Science Programme in Engineering Physics
Presentation
2017-01-13, 09:00 (Swedish)
Supervisors
Examiners
Available from: 2017-02-13 Created: 2017-02-11 Last updated: 2017-02-13Bibliographically approved

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CiteExportLink to record
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Citation style
  • apa
  • ieee
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  • vancouver
  • Other style
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  • de-DE
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Output format
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