Dynamic Credit Default Swap

KR0 · August 10th, 2004, 5:10 pm

Hello,I'm looking for information on hedging dynamic credit exposure on interest rate swaps and cross ccy interest rate swaps by a credit default swap. Hull & White mention the Dynamic CDS in their paper "Valuing Credit Default Swaps I: No Counterparty Default Risk" (April 2002): Text, but the paper does not provide a methodology or example. Does anyone of you could help me out with any info related to this subject (I have searched the internet many times, but with no result). Thanks in advance,Kim

mrowell · August 11th, 2004, 4:46 am

KR0 -- you should take a look at the Risk book on credit by Gregory and Arvanitis. There is a section in thereon heding cp exposure of interest rate derivatives. From what I remember to hedge an in the money swapyou use a probability weighted sum of european swaptions...RegardsMark