Modeling and pricing of credit derivatives using macroeconomic information
We show how to price credit default options and swaps based on a four-factor defaultable term-structure model. One of the key factors is a macroeconomic factor that takes into account the impact of the general economy on the quality of firms. We derive the pricing functions and show how to calibrate the model to market prices. Basically, we need three pieces of information: the actual non-defaultable, the defaultable, and the zero-recovery defaultable term structure. The first two pieces can be easily obtained from observable market data, the latter can be inferred from the other two. We illustrate the whole pricing process, from model specification and parameter estimation to the actual credit derivatives pricing. Our data includes the recent credit crisis and proves the performance of our model even through times of market dislocation.
To our knowledge, this item is not available for
download. To find whether it is available, there are three
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
Volume (Year): 26 (2009)
Issue (Month): ()
|Contact details of provider:|| Postal: 77 Water Street, 10th Floor, New York NY 10005|
Phone: +1 212 284 8600
Web page: http://www.capco.com/
When requesting a correction, please mention this item's handle: RePEc:ris:jofitr:1395. 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: (Prof. Shahin Shojai)
If references are entirely missing, you can add them using this form.