Valuation and Analysis of Basket Credit Linked Notes with Issuer Default Risk
نویسنده
چکیده
This paper explores a reasonable coupon rate for basket credit linked notes (CLN) with issuer default risk. Based on the one factor Gaussian copula model, this paper proposes three methods for incorporating issuer default into basket CLN pricing. Numerical results indicate that issuer default risk impacts basket CLN coupon rate. Furthermore, the coupon rate differs with changes in correlation structure among the three methods. Finally, one of the three methods is identified as the most suitable.
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