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An exact formula for default swaptions’ pricing in the SSRJD stochastic intensity model

  • Damiano Brigo

    (Q-SCI, DerivativeFitch / QFR - Fitch Ratings)

  • Naoufel El-Bachir

    ()

    (ICMA Centre, University of Reading)

We develop and test a fast and accurate semi-analytical formula for single-name default swaptions in the context of the shifted square root jump diffusion (SSRJD) default intensity model. The formula consists of a decomposition of an option on a summation of survival probabilities in a summation of options on the underlying survival probabilities, where the strike for each option is adjusted.

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File URL: http://www.icmacentre.ac.uk/files/pdf/dps/dp2007_14.pdf
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Paper provided by Henley Business School, Reading University in its series ICMA Centre Discussion Papers in Finance with number icma-dp2007-14.

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Length: 18 pages
Date of creation: Nov 2007
Date of revision:
Handle: RePEc:rdg:icmadp:icma-dp2007-14
Contact details of provider: Postal: PO Box 218, Whiteknights, Reading, Berks, RG6 6AA
Phone: +44 (0) 118 378 8226
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Web page: http://www.henley.reading.ac.uk/

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  1. Darrell Duffie & Jun Pan & Kenneth Singleton, 1999. "Transform Analysis and Asset Pricing for Affine Jump-Diffusions," NBER Working Papers 7105, National Bureau of Economic Research, Inc.
  2. Cox, John C & Ingersoll, Jonathan E, Jr & Ross, Stephen A, 1985. "A Theory of the Term Structure of Interest Rates," Econometrica, Econometric Society, vol. 53(2), pages 385-407, March.
  3. Farshid Jamshidian, 2004. "Valuation of credit default swaps and swaptions," Finance and Stochastics, Springer, vol. 8(3), pages 343-371, 08.
  4. Jamshidian, Farshid, 1989. " An Exact Bond Option Formula," Journal of Finance, American Finance Association, vol. 44(1), pages 205-09, March.
  5. Black, Fischer, 1976. "The pricing of commodity contracts," Journal of Financial Economics, Elsevier, vol. 3(1-2), pages 167-179.
  6. Damiano Brigo & Aurélien Alfonsi, 2005. "Credit default swap calibration and derivatives pricing with the SSRD stochastic intensity model," Finance and Stochastics, Springer, vol. 9(1), pages 29-42, January.
  7. Damiano Brigo & Naoufel El-Bachir, 2006. "Credit Derivatives Pricing with a Smile-Extended Jump Stochastic Intensity Model," ICMA Centre Discussion Papers in Finance icma-dp2006-13, Henley Business School, Reading University.
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