Counterparty Valuation Adjustment Calculation Model of Multi counterparties Credit Default Swap

Abstract:

A multi counterparties credit default swap（CDS）was investigated. Under the reduced model framework, single factor cox ingersoll ross（CIR）and inversed CIR models were used to characterize positive and negative correlation of the default rates among the counterparties and reference. The counterparty valuation adjustment（CVA）calculation model was obtained, which was expressed by a system of coupled non linear partial differential equations. With this model, CVA was calculated by an iterative numerical algorithm. The results were analyzed correspondingly, which indicated the dependence on the parameters of the CVA, and a comparative study was made with the results of the standard single name CDS.