Modelling bonds and credit default swaps using a structural model with contagion
AbstractThis paper develops a two-dimensional structural framework for valuing credit default swaps and corporate bonds in the presence of default contagion. Modelling the values of related firms as correlated geometric Brownian motions with exponential default barriers, analytical formulae are obtained for both credit default swap spreads and corporate bond yields. The credit dependence structure is influenced by both a longer-term correlation structure as well as by the possibility of default contagion. In this way, the model is able to generate a diverse range of shapes for the term structure of credit spreads using realistic values for input parameters.
Download InfoIf 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.
Bibliographic InfoArticle provided by Taylor & Francis Journals in its journal Quantitative Finance.
Volume (Year): 8 (2008)
Issue (Month): 7 ()
Contact details of provider:
Web page: http://www.tandfonline.com/RQUF20
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Sebastian Heise & and Reimer Kuehn, 2012. "Derivatives and Credit Contagion in Interconnected Networks," Papers 1202.3025, arXiv.org.
- Alexander Lipton & Ioana Savescu, 2012. "Pricing credit default swaps with bilateral value adjustments," Papers 1207.6049, arXiv.org.
- Dima Rahman, 2009. "Are Banking Systems Increasingly Fragile ? Investigating Financial Institutions’ CDS Returns Extreme Co-Movements," EconomiX Working Papers 2009-34, University of Paris West - Nanterre la Défense, EconomiX.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael McNulty).
If references are entirely missing, you can add them using this form.