This paper reviews the methodologies and the estimations of the parameters for the valuation of credit derivatives. It also provides the valuation of the actual traded market data of credit default swap using the Hull and White Model (2000, 2001), that the payoff is contingent on default by a single reference entity when there is both a counterparty credit risk and no counterparty credit risk. This paper shows that when a counterparty credit risk is taken into account and it is assumed that the default correlation between the reference entity and the counterparty is independent, the impact of a counterparty credit risk is insignificant on the valuation of credit default swap. In addition, this paper tests the sensitivities of the valuation of credit default swap in the cases of the bondholders’ claims and expected recovery rates. The result shows that the impact of the claim is not significant on the valuation of credit default swap. And it also shows that in an upward-sloping yield curve, when the expected recovery rate increases, the spread of credit default swap also increases whether there is a counterparty credit risk or not. In other words, the credit default swap spread is an increasing function of the expected recovery rate. But the change of the spread is fairy small for reasonable estimates of the expected recovery rate.
