FROM BID-ASK CREDIT DEFAULT SWAP QUOTES TO RISK-NEUTRAL DEFAULT PROBABILITIES USING DISTORTED EXPECTATIONS
نویسندگان
چکیده
Risk-neutral default probabilities can be implied from credit swap (CDS) market quotes. In practice, mid CDS quotes are used as inputs, their risk-neutral counterparts not observable. We show how to imply bid and ask directly by means of formulating the calibration problem within conic finance framework. Assuming distribution time driven a Poisson process we prove, under mild liquidity-related assumptions, that admits unique solution also allows jointly calculate liquidity market.
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ژورنال
عنوان ژورنال: International Journal of Theoretical and Applied Finance
سال: 2021
ISSN: ['1793-6322', '0219-0249']
DOI: https://doi.org/10.1142/s0219024921500175