Advanced Search
MyIDEAS: Login to save this article or follow this journal

Credit default swap calibration and derivatives pricing with the SSRD stochastic intensity model


Author Info

  • Damiano Brigo


  • Aurélien Alfonsi



We introduce the two-dimensional shifted square-root diffusion (SSRD) model for interest-rate and credit derivatives with (positive) stochastic intensity. The SSRD is the unique explicit diffusion model allowing an automatic and separated calibration of the term structure of interest rates and of credit default swaps (CDS’s), and retaining free dynamics parameters that can be used to calibrate option data. We propose a new positivity preserving implicit Euler scheme for Monte Carlo simulation. We discuss the impact of interest-rate and default-intensity correlation and develop an analytical approximation to price some basic credit derivatives terms involving correlated CIR processes. We hint at a formula for CDS options under CIR + + CDS-calibrated stochastic intensity. Copyright Springer-Verlag Berlin/Heidelberg 2005

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL:
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by Springer in its journal Finance and Stochastics.

Volume (Year): 9 (2005)
Issue (Month): 1 (January)
Pages: 29-42

as in new window
Handle: RePEc:spr:finsto:v:9:y:2005:i:1:p:29-42

Contact details of provider:
Web page:

Order Information:

Related research

Keywords: Interest-rate derivatives; credit derivatives; interest-rate intensity correlation; calibration; Monte Carlo simulation;


No references listed on IDEAS
You can help add them by filling out this form.


Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Naoufel El-Bachir & Damiano Brigo, 2008. "An analytically tractable time-changed jump-diffusion default intensity model," ICMA Centre Discussion Papers in Finance, Henley Business School, Reading University icma-dp2008-06, Henley Business School, Reading University.
  2. Jankowitsch, Rainer & Pullirsch, Rainer & Veza, Tanja, 2008. "The delivery option in credit default swaps," Journal of Banking & Finance, Elsevier, Elsevier, vol. 32(7), pages 1269-1285, July.
  3. Damiano Brigo & Kyriakos Chourdakis & Imane Bakkar, 2009. "Counterparty risk valuation for Energy-Commodities swaps: Impact of volatilities and correlation," Papers 0901.1099,
  4. Damiano Brigo & Andrea Pallavicini & Vasileios Papatheodorou, 2009. "Bilateral counterparty risk valuation for interest-rate products: impact of volatilities and correlations," Papers 0911.3331,, revised Feb 2010.
  5. Damiano Brigo & Naoufel El-Bachir, 2008. "An exact formula for default swaptions' pricing in the SSRJD stochastic intensity model," Papers 0812.4199,
  6. Guo, Zhi Jun, 2008. "A note on the CIR process and the existence of equivalent martingale measures," Statistics & Probability Letters, Elsevier, Elsevier, vol. 78(5), pages 481-487, April.
  7. Damiano Brigo & Jo\~ao Garcia & Nicola Pede, 2013. "CoCo Bonds Valuation with Equity- and Credit-Calibrated First Passage Structural Models," Papers 1302.6629,
  8. Guarin, Alexander & Liu, Xiaoquan & Ng, Wing Lon, 2011. "Enhancing credit default swap valuation with meshfree methods," European Journal of Operational Research, Elsevier, Elsevier, vol. 214(3), pages 805-813, November.
  9. Guarin, Alexander & Liu, Xiaoquan & Ng, Wing Lon, 2014. "Recovering default risk from CDS spreads with a nonlinear filter," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 38(C), pages 87-104.
  10. Cousot, Laurent, 2007. "Conditions on option prices for absence of arbitrage and exact calibration," Journal of Banking & Finance, Elsevier, Elsevier, vol. 31(11), pages 3377-3397, November.
  11. Papin, Timothée, 2013. "Pricing of Corporate Loan : Credit Risk and Liquidity cost," Economics Thesis from University Paris Dauphine, Paris Dauphine University, Paris Dauphine University, number 123456789/12545 edited by Turinici, Gabriel.
  12. Damiano Brigo & Marco Tarenghi, 2009. "Credit Default Swap Calibration and Equity Swap Valuation under Counterparty Risk with a Tractable Structural Model," Papers 0912.3028,
  13. Damiano Brigo & Andrea Pallavicini & Roberto Torresetti, 2009. "Credit models and the crisis, or: how I learned to stop worrying and love the CDOs," Papers 0912.5427,, revised Feb 2010.
  14. Damiano Brigo & Mirela Predescu & Agostino Capponi, 2010. "Credit Default Swaps Liquidity modeling: A survey," Papers 1003.0889,, revised Mar 2010.
  15. Damiano Brigo, 2008. "Constant Maturity Credit Default Swap Pricing with Market Models," Papers 0812.4159,
  16. S. Corsaro & P. De Angelis & Z. Marino & F. Perla, 2011. "Participating life insurance policies: an accurate and efficient parallel software for COTS clusters," Computational Management Science, Springer, vol. 8(3), pages 219-236, August.
  17. Jean-David Fermanian & Olivier Vigneron, 2012. "On break-even correlation: the way to price structured credit derivatives by replication," Papers 1204.2251,
  18. Damiano Brigo, 2011. "Counterparty Risk FAQ: Credit VaR, PFE, CVA, DVA, Closeout, Netting, Collateral, Re-hypothecation, WWR, Basel, Funding, CCDS and Margin Lending," Papers 1111.1331,, revised Jun 2012.
  19. Damiano Brigo & Naoufel El-Bachir, 2006. "Credit Derivatives Pricing with a Smile-Extended Jump Stochastic Intensity Model," ICMA Centre Discussion Papers in Finance, Henley Business School, Reading University icma-dp2006-13, Henley Business School, Reading University.


This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.


Access and download statistics


When requesting a correction, please mention this item's handle: RePEc:spr:finsto:v:9:y:2005:i:1:p:29-42. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Guenther Eichhorn) or (Christopher F Baum).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.