A Dynamic Model for Credit Index Derivatives

Details A Dynamic Model for Credit Index Derivatives A Dynamic Model for Credit Index Derivatives

2009-11-09

arxiv.org/abs/0911.1662v1

Economy

Quantitative Finance

Pricing of Securities

32 pages

Scientific paper

We present a new model for credit index derivatives, in the top-down approach. This model has a dynamic loss intensity process with volatility and jumps and can include counterparty risk. It handles CDS, CDO tranches, Nth-to-default and index swaptions. Using properties of affine models, we derive closed formulas for the pricing of index CDS, CDO tranches and Nth-to-default. For index swaptions, we give an exact pricing and an approximate faster method. We finally show calibration results on 2009 market data.

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