Credit Risk Reversal

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

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

CRR became a popular model for constructing credit-equity relative value trades as well as asset allocation and risk management tool. The model has been used by major banks including JPMorgan, Deutsche Bank, Morgan Stanley and Credit Swiss.

Article: Pricing Credit from Equity Options – Market Model

Back to pages Kirill Ilinski, Reseach