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Benchmark Pricing of Credit Derivatives Under a Standard Market Model

This paper makes use of an integrated benchmark modelling framework that allows us to model credit risk. We demonstrate how to price contingent claims by taking expectations under the real world probability measure in a benchmarked world. Furthermore, put and call options on an index are studied that measure the credit worthiness of a firm.

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File URL: http://www.business.uts.edu.au/qfrc/research/research_papers/rp60.pdf
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Paper provided by Quantitative Finance Research Centre, University of Technology, Sydney in its series Research Paper Series with number 60.

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Date of creation: 01 Jun 2001
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Handle: RePEc:uts:rpaper:60
Contact details of provider: Postal: PO Box 123, Broadway, NSW 2007, Australia
Phone: +61 2 9514 7777
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Web page: http://www.qfrc.uts.edu.au/

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  1. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-54, May-June.
  2. Lara Cathcart & Lina El-Jahel, 2006. "Pricing defaultable bonds: a middle-way approach between structural and reduced-form models," Quantitative Finance, Taylor & Francis Journals, vol. 6(3), pages 243-253.
  3. Merton, Robert C., 1977. "On the pricing of contingent claims and the Modigliani-Miller theorem," Journal of Financial Economics, Elsevier, vol. 5(2), pages 241-249, November.
  4. 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 449-70, May.
  5. Jarrow, Robert A & Lando, David & Turnbull, Stuart M, 1997. "A Markov Model for the Term Structure of Credit Risk Spreads," Review of Financial Studies, Society for Financial Studies, vol. 10(2), pages 481-523.
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