Pricing and trading credit default swaps in a hazard process model

Pricing and Trading Credit Default Swaps in a Hazard Process Model

In the paper we study dynamics of the arbitrage prices of credit default swaps within a hazard process model of credit risk. We derive these dynamics without postulating that the immersion property is satisfied between some relevant filtrations. These results are then applied so to study the problem of replication of general defaultable claims, including some basket claims, by means of dynamic ...

Pricing and Trading Credit Default Swaps under Deterministic Intensity∗

∗This work was completed during our visit to the Isaac Newton Institute for Mathematical Sciences in Cambridge. We thank the organizers of the programme Developments in Quantitative Finance for the kind invitation. †The research of T.R. Bielecki was supported by NSF Grant 0202851 and Moody’s Corporation grant 5-55411. ‡The research of M. Jeanblanc was supported by Zéliade, Itô33, and Moody’s Co...

Pricing Credit Default Swaps Under Default Correlations and Counterparty Risk ∗

In this paper, we develop a generalized affine model to characterize correlated credit risk of multi-firms. When valuing credit derivatives, this new approach allows to incorporate correlative market and credit risk, interdependent default risk structure and counterparty risk into consideration. We have demonstrated our affine model not only combines the existing structural models and intensity...

Efficient Pricing Routines of Credit Default Swaps in a Structural Default Model with Jumps

In this paper, we present two efficient algorithms for pricing credit default swaps based on a structural default model. In our model, the value of the firm is assumed to be the exponential of a jump-diffusion process. Our first algorithm to price a credit default swap within this framework is an efficient and unbiased Monte Carlo simulation. An excellent performance is obtained by first simula...

Hedging of Credit Default Swaptions in a Hazard Process Model