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Implied Default Probability and Credit Derivatives

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  • Koichi Matsumoto

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Abstract

Recently many kinds of credit derivatives are traded in the market. The default probability implied in the market becomes important to price some credit derivatives. Also it is useful for managing the credit risk because it includes the market information. In this paper we show how to calculate the implied default probability in the default swap market or the defaultable bond market. Copyright Springer Science + Business Media, Inc. 2003

Suggested Citation

  • Koichi Matsumoto, 2003. "Implied Default Probability and Credit Derivatives," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 10(2), pages 129-149, September.
  • Handle: RePEc:kap:apfinm:v:10:y:2003:i:2:p:129-149
    DOI: 10.1007/s10690-005-6007-z
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    References listed on IDEAS

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    1. Robert Jarrow & Dilip Madan, 1995. "Option Pricing Using The Term Structure Of Interest Rates To Hedge Systematic Discontinuities In Asset Returns," Mathematical Finance, Wiley Blackwell, vol. 5(4), pages 311-336.
    2. Merton, Robert C, 1974. "On the Pricing of Corporate Debt: The Risk Structure of Interest Rates," Journal of Finance, American Finance Association, vol. 29(2), pages 449-470, May.
    3. Duffie, Darrell & Singleton, Kenneth J, 1999. "Modeling Term Structures of Defaultable Bonds," Review of Financial Studies, Society for Financial Studies, vol. 12(4), pages 687-720.
    4. Robert A. Jarrow & David Lando & Stuart M. Turnbull, 2008. "A Markov Model for the Term Structure of Credit Risk Spreads," World Scientific Book Chapters,in: Financial Derivatives Pricing Selected Works of Robert Jarrow, chapter 18, pages 411-453 World Scientific Publishing Co. Pte. Ltd..
    5. Robert A. Jarrow, 2009. "The Term Structure of Interest Rates," Annual Review of Financial Economics, Annual Reviews, vol. 1(1), pages 69-96, November.
    6. David Heath & Robert Jarrow & Andrew Morton, 2008. "Bond Pricing And The Term Structure Of Interest Rates: A New Methodology For Contingent Claims Valuation," World Scientific Book Chapters,in: Financial Derivatives Pricing Selected Works of Robert Jarrow, chapter 13, pages 277-305 World Scientific Publishing Co. Pte. Ltd..
    7. Robert A. Jarrow & Stuart M. Turnbull, 2008. "Pricing Derivatives on Financial Securities Subject to Credit Risk," World Scientific Book Chapters,in: Financial Derivatives Pricing Selected Works of Robert Jarrow, chapter 17, pages 377-409 World Scientific Publishing Co. Pte. Ltd..
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