Title page for ETD etd-07032012-130413


Document Type Master's Dissertation
Author Milwidsky, Cara
Email cmilwidsky@gmail.com
URN etd-07032012-130413
Document Title Credit valuation adjustments with application to credit default swaps
Degree MSc
Department Mathematics and Applied Mathematics
Supervisor
Advisor Name Title
Prof. E Mare Supervisor
Keywords
  • credit default swap (CDS)
  • credit valuation adjustment (CVA)
Date 2012-04-13
Availability unrestricted
Abstract
The credit valuation adjustment (CVA) on an over-the-counter derivative transaction is the price of the risk associated with the potential default of the counterparties to the trade. This dissertation provides an introduction to the concept of CVA, beginning with the required backdrop of counterparty risk and the basics of default risk modelling. Right and wrong way risks are central themes of the dissertation. A model for the pricing of both the unilateral and the bilateral CVA on a credit default swap (CDS) is implemented. Each step of this process is explained thoroughly. Results are reported and discussed for a range of parameters. The trends observed in the CDS CVA numbers produced by the model are all justified and the right and wrong way nature of the exposures captured. In addition, the convergence and stability of the numerical schemes utilised are shown to be appropriate. A case study, in which the model is applied to a set of market scenarios, concludes the dissertation. Since the field is far from established, a number of areas are suggested for further research.

Copyright 2011, University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria. No part of this work may be reproduced or transmitted in any form or by any means, without the prior written permission of the University of Pretoria

Please cite as follows:

Milwidsky, C 2011, Credit valuation adjustments with application to credit default swaps, MSc dissertation, University of Pretoria, Pretoria, viewed yymmdd < http://upetd.up.ac.za/thesis/available/ etd-07032012-130413/>

E12/4/469/hj

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