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BSFTDWithMultiJump Model and Pricing of Quanto FTD with FX Devaluation Risk

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  • EL-Mohammadi, Rachid
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    Abstract

    We present a new model for pricing Quanto FTD where the FX could be strongly dependent to some or all credit names. The model assumes lognormal hazard rate and deterministic FX local volatility where the FX spot can jump at time of first to default and where the jump size depends on credit name reference. We present the model, the calibration algorithm, and the Quanto FTD pricing. This model is an extension of the model BSWithJump for pricing Quanto CDS with FX devaluation risk.

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    File URL: http://mpra.ub.uni-muenchen.de/42782/
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    Bibliographic Info

    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 42782.

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    Date of creation: Oct 2009
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    Handle: RePEc:pra:mprapa:42782

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    Related research

    Keywords: Quanto FTD; local currency; FX devaluatiion risk; hazard process approach; Jump models; lognormal hazard process; calibration on FX options; FTD pricing with copula;

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