Collateralized CDS And Default Dependence
In this paper, the authors have studied the pricing of a continuously collateralized CDS. They have made use of the "Survival measure" to derive the pricing formula in a straightforward way. As a result, they have found that there exists irremovable trace of the counter party as well as the investor in the price of CDS through their default dependence even under the perfect collateralization, although the hazard rates of the two parties are totally absent from the pricing formula. As an important implication, they have also studied the situation where the investor enters an offsetting back-to-back trade with another counter party.