The kth Default Time Distribution and Basket Default Swap Pricing

Fast Pricing of Basket Default Swaps

A basket default swap is a derivative security tied to an underlying basket of corporate bonds or other assets subject to credit risk. The value of the contract depends on the joint distribution of the default times of the underlying assets. Valuing a basket default swap often entails Monte Carlo simulation of these default times. For baskets of high-quality credits and for swaps that require m...

Hedging of Basket Credit Derivatives in Credit Default Swap Market

An Application of Genetic Network Programming Model for Pricing of Basket Default Swaps (BDS)

The credit derivatives market has experienced remarkable growth over the past decade. As such, there is a growing interest in tools for pricing of the most prominent credit derivative, the credit default swap (CDS). In this paper, we propose a heuristic algorithm for pricing of basket default swaps (BDS). For this purpose, genetic network programming (GNP), which is one of the recent evolutiona...

Constant Maturity Credit Default Swap Pricing with Market Models

In this work we derive an approximated no-arbitrage market valuation formula for Constant Maturity Credit Default Swaps (CMCDS). We move from the CDS options market model in Brigo (2004), and derive a formula for CMCDS that is the analogous of the formula for constant maturity swaps in the default free swap market under the LIBOR market model. A “convexity adjustment”-like correction is present...

Basket Default Swaps Pricing Based on the Normal Inverse Gaussian Distribution

In this paper, a normal inverse Gaussian factor model is developed to describe the fat-tailed feature of the default distribution of reference entities in order to study basket default swaps pricing. Based on this model, the explicit formula for the distribution of the kth default time is accurately obtained by making use of order statistics, and the closed forms of the price of BDS at the kth ...