Collateral and Credit Issues in Derivatives Pricing
Abstract: Regulatory changes are increasing the importance of collateral agreements and credit issues in over-the-counter derivatives transactions. This paper considers the nature of derivatives collateral agreements and examines the impact of collateral agreements, two-sided credit risk, funding costs, and bid-offer spreads on the valuation of derivatives portfolios.
Keywords: Derivatives Valuation, Collateral, Credit Risk, CVA, DVA, FVA.
Previously titled: CVA, DVA, FVA and the Black-Scholes-Merton Arguments