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| Type | Master's Thesis |
| Scope | Discipline-based scholarship |
| Title | CVA pricing and sensitivities with wrong-way risk in structural credit risk models for commodities |
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| Institution | University of Zurich |
| Faculty | Faculty of Business, Economics and Informatics |
| Number of Pages | 92 |
| Date | 2019 |
| Abstract Text | The objective of this thesis is to investigate the possibility of using structural credit risk models in the context of CVA calculations with wrong-way risk in the electricity market. The modelling approach can be divided into two major steps. It first derives the unconditional dynamic credit exposures for energy forward contracts with a speci c delivery pattern (physical "flow-delivery" within a pre-defi ned delivery interval) as well as for plain vanilla options on such forward contracts. The derivation builds on the underlying forward curves simulated according to an extension of the three-factor model in the sense of [Bjerksund et al.], which is based on the well-known HJM framework [Heath, Jarrow, and Morton]. A multi-period Merton-type structural credit risk model then is applied to introduce default scenarios for the credit exposure pro files by using a joint Monte Carlo simulation. In particular, the methodology is able to take wrong-way/right-way risk into account for CVA calculations on all hierarchical levels of the portfolio/netting sets and could also be applied for credit portfolio risk calculations with wrong-way/right-way risk. |
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