Economy – Quantitative Finance – Pricing of Securities
Scientific paper
2009-12-15
Economy
Quantitative Finance
Pricing of Securities
Reduced version in Proceedings of the FEA 2004 Conference at MIT, Cambridge, Massachusetts, November 8-10, and in: Pykhtin, M.
Scientific paper
In this paper we develop a tractable structural model with analytical default probabilities depending on some dynamics parameters, and we show how to calibrate the model using a chosen number of Credit Default Swap (CDS) market quotes. We essentially show how to use structural models with a calibration capability that is typical of the much more tractable credit-spread based intensity models. We apply the structural model to a concrete calibration case and observe what happens to the calibrated dynamics when the CDS-implied credit quality deteriorates as the firm approaches default. Finally we provide a typical example of a case where the calibrated structural model can be used for credit pricing in a much more convenient way than a calibrated reduced form model: The pricing of counterparty risk in an equity swap.
Brigo Damiano
Tarenghi Marco
No associations
LandOfFree
Credit Default Swap Calibration and Equity Swap Valuation under Counterparty Risk with a Tractable Structural Model does not yet have a rating. At this time, there are no reviews or comments for this scientific paper.
If you have personal experience with Credit Default Swap Calibration and Equity Swap Valuation under Counterparty Risk with a Tractable Structural Model, we encourage you to share that experience with our LandOfFree.com community. Your opinion is very important and Credit Default Swap Calibration and Equity Swap Valuation under Counterparty Risk with a Tractable Structural Model will most certainly appreciate the feedback.
Profile ID: LFWR-SCP-O-48354