Credit Risk Reversal

Credit Risk Reversal (CRR), a market model for relative Credit/Equity Volatility pricing and hedging, corrected the short-comings of structural Merton-style debt-equity models and resulted in a range of credit “bear” products for funds and bank loan portfolios.

The strategy became a landmark in Debt-Equity trading and was acknowledged as one of JPMorgan’s achievements for IFR “Derivatives House of the Year” 2003 award.

CRR has become a popular model for constructing credit-equity relative value trades as well as useful tool for asset allocation and risk management. The model has been used by leading global banking institutions including JPMorgan, Deutsche Bank, Morgan Stanley and Credit Suisse.

Article: Pricing Credit from Equity Options – Market Model

Back to pages Kirill Ilinski, Reseach