  We introduce an innovative theoretical framework to model derivative
transactions between defaultable entities based on the principle of arbitrage
freedom. Our framework extends the traditional formulations based on Credit and
Debit Valuation Adjustments (CVA and DVA). Depending on how the default
contingency is accounted for, we list a total of ten different structuring
styles. These include bipartite structures between a bank and a counterparty,
tri-partite structures with one margin lender in addition, quadri-partite
structures with two margin lenders and, most importantly, configurations where
all derivative transactions are cleared through a Central Counterparty (CCP).
We compare the various structuring styles under a number of criteria including
consistency from an accounting standpoint, counterparty risk hedgeability,
numerical complexity, transaction portability upon default, induced behaviour
and macro-economic impact of the implied wealth allocation.
