Abstract

We present a detailed analysis of interest rate derivatives valuation undercredit risk and collateral modeling. We show how the credit and collateral extendedvaluation framework in Pallavicini et al (2011) can be helpful in defining the keymarket rates underlying the multiple interest rate curves that characterize currentinterest rate markets. We introduce the collateralized valuation measures and formulatea consistent realistic dynamics for the rates emerging from our analysis. Wepoint out limitations of multiple curve models with deterministic basis consideringvaluation of particularly sensitive products such as basis swaps.

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Authors

Giacomo Bormetti, Damiano Brigo, Marco Francischello, Andrea Pallavicini

Year

2015

Journal

arXiv preprint arXiv:1507.08779.

Keywords

Finance and General Finance

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