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Title: A method for pricing the credit valuation adjustment of unlisted companies
Authors: Formenti, Matteo
Issue Date: 2019
Publisher: Henry Stewart publications
Bibliographic citation: Formenti Matteo (2019), A method for pricing the credit valuation adjustment of unlisted companies. In: Journal of risk management in financial institutions, vol. 12, n. 2, Spring 2019, p. 184-194. ISSN 1752-8887. E-ISSN 1752-8895.
Abstract: Estimating the credit valuation adjustment (CVA) for unlisted companies is a challenging issue because it is not possible to estimate the risk neutral default probability from either the credit default swap (CDS) par spread or equity stock. This paper proposes a calibration method that easily estimates the market risk premium, which is added to the internal rating model of unlisted companies to obtain a risk neutral default probability. The method is applied to price the CVA of a portfolio of swaps for unlisted counterparties using the advanced method approach, and the results are benchmarked using the Bank for International Settlements (BIS) approach for illiquid counterparties. Last, the robustness tests confirm the reliability of the calibration method, both for its use in risk management and accounting.
Journal/Book: Journal of risk management in financial institutions
ISSN: 1752-8887
Appears in Collections:Contributo in rivista

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