Quantifying Correlation Uncertainty Risk in Credit Derivatives Pricing

Pricing Credit Risk Derivatives

In this paper the pricing of several credit risk derivatives is discussed in an intensity-based framework with both risk-free and defaultable interest rates stochastic and possibly correlated. Credit spread puts and exchange options serve as main examples. The differences to standard interest rate derivatives are analysed. Where possible closed-form solutions are given.

Credit risk in the pricing and hedging of derivatives

Credit risk is present under various forms in any derivative products. However, the fact is that credit risk is not, in general, priced in the various models commonly used for equity, FX, IR of commodity derivatives. This note is aimed at presenting a few guidelines for the modelling of default risk and spread risk in the context of derivatives, thereby treating any derivative as a genuine cred...

Credit derivatives and loan pricing

This paper examines the relation between the new markets for credit default swaps (CDS) and banks’ pricing of syndicated loans to US corporates. We find that changes in CDS spreads have a significantly positive coefficient and explain about 25% of subsequent monthly changes in aggregate loan spreads during 2000–2005. Moreover, when compared to traditional explanatory factors, they turn out to b...

Information Asymmetry in Pricing of Credit Derivatives

We study the pricing of credit derivatives with asymmetric information. The managers have complete information on the value process of the firm and on the default threshold, while the investors on the market have only partial observations, especially about the default threshold. Different information structures are distinguished using the framework of enlargement of filtrations. We specify risk...

Basic Insights in Pricing Basket Credit Derivatives