An exact formula for default swaptions' pricing in the SSRJD stochastic intensity model

Details An exact formula for default swaptions' pricing in the SSRJD stochastic intensity model An exact formula for default swaptions' pricing in the SSRJD stochastic intensity model

2008-12-22

arxiv.org/abs/0812.4199v1

Economy

Quantitative Finance

Pricing of Securities

Accepted for publication in Mathematical Finance

Scientific paper

We develop and test a fast and accurate semi-analytical formula for single-name default swaptions in the context of a shifted square root jump diffusion (SSRJD) default intensity model. The model can be calibrated to the CDS term structure and a few default swaptions, to price and hedge other credit derivatives consistently. We show with numerical experiments that the model implies plausible volatility smiles.

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