IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

Fast Valuation Of Forward-Starting Basket Default Swaps

  • KEN JACKSON

    ()

    (Department of Computer Science, University of Toronto, 10 King's College Road, Toronto, ON, M5S 3G4, Canada)

  • ALEX KREININ

    ()

    (Algorithmics Inc., 185 Spadina Avenue, Toronto, ON, M5T 2C6, Canada)

  • WANHE ZHANG

    ()

    (Department of Computer Science, University of Toronto, 10 King's College Road, Toronto, ON, M5S 3G4, Canada)

Registered author(s):

    A basket default swap (BDS) is a credit derivative with contingent payments that are triggered by a combination of default events of the reference entities. A forward-starting basket default swap (FBDS) is a BDS starting at a specified future time. Existing analytic or semi-analytic methods for pricing FBDS are time consuming due to the large number of possible default combinations before the BDS starts. This paper develops a fast approximation method for FBDS based on the conditional independence framework. The method converts the pricing of a FBDS to an equivalent BDS pricing problem and combines Monte Carlo simulation with an analytic approach to achieve an effective method. This hybrid method is a novel technique which can be viewed either as a means to accelerate the convergence of Monte Carlo simulation or as a way to estimate parameters in an analytic method that are difficult to compute directly. Numerical results demonstrate the accuracy and efficiency of the proposed hybrid method.

    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: http://www.worldscinet.com/cgi-bin/details.cgi?type=pdf&id=pii:S0219024910005735
    Download Restriction: Access to full text is restricted to subscribers.

    File URL: http://www.worldscinet.com/cgi-bin/details.cgi?type=html&id=pii:S0219024910005735
    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.

    Article provided by World Scientific Publishing Co. Pte. Ltd. in its journal International Journal of Theoretical and Applied Finance.

    Volume (Year): 13 (2010)
    Issue (Month): 02 ()
    Pages: 195-209

    as
    in new window

    Handle: RePEc:wsi:ijtafx:v:13:y:2010:i:02:p:195-209
    Contact details of provider: Web page: http://www.worldscinet.com/ijtaf/ijtaf.shtml

    Order Information: Email:


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

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

    When requesting a correction, please mention this item's handle: RePEc:wsi:ijtafx:v:13:y:2010:i:02:p:195-209. 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: (Tai Tone Lim)

    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.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.