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BSFTDWithMultiJump Model and Pricing of Quanto FTD with FX Devaluation Risk

Author

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  • EL-Mohammadi, Rachid

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.

Suggested Citation

  • EL-Mohammadi, Rachid, 2009. "BSFTDWithMultiJump Model and Pricing of Quanto FTD with FX Devaluation Risk," MPRA Paper 42782, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:42782
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    File URL: https://mpra.ub.uni-muenchen.de/42782/1/MPRA_paper_42782.pdf
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    More about this item

    Keywords

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

    JEL classification:

    • C0 - Mathematical and Quantitative Methods - - General
    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General

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