We obtain a quasi-analytical approximation of the survival probability in the credit risk modelproposed in [Madan, D.B. and Unal, H., Pricing the risk of default.Rev. Deriv. Res., 1998,2(2), 121–160]. Such a formula, which extensive numerical simulations reveal to be accurate andcomputationally fast, can also be employed for pricing credit default swaps (CDSs). Specifically,we derive a quasi-analytical approximate expression for CDS par spreads, and we use it to estimatethe parameters of the model. The results obtained show a rather satisfactory agreement betweentheoretical and real market data.
We obtain a quasi-analytical approximation of the survival probability in the credit risk model proposed in [Madan, D.B. and Unal, H., Pricing the risk of default. Rev. Deriv. Res., 1998, 2(2), 121–160]. Such a formula, which extensive numerical simulations reveal to be accurate and computationally fast, can also be employed for pricing credit default swaps (CDSs). Specifically, we derive a quasi-analytical approximate expression for CDS par spreads, and we use it to estimate the parameters of the model. The results obtained show a rather satisfactory agreement between theoretical and real market data.
Luca Vincenzo Ballestra, Graziella Pacelli, Davide Radi (2017). Computing the survival probability in the Madan–Unal credit risk model: application to the CDS market. QUANTITATIVE FINANCE, 17(2), 299-313 [10.1080/14697688.2016.1189590].
Computing the survival probability in the Madan–Unal credit risk model: application to the CDS market
BALLESTRA, LUCA VINCENZO;
2017
Abstract
We obtain a quasi-analytical approximation of the survival probability in the credit risk model proposed in [Madan, D.B. and Unal, H., Pricing the risk of default. Rev. Deriv. Res., 1998, 2(2), 121–160]. Such a formula, which extensive numerical simulations reveal to be accurate and computationally fast, can also be employed for pricing credit default swaps (CDSs). Specifically, we derive a quasi-analytical approximate expression for CDS par spreads, and we use it to estimate the parameters of the model. The results obtained show a rather satisfactory agreement between theoretical and real market data.I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.
