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.

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.
2017
Luca Vincenzo Ballestra; Graziella Pacelli; Davide Radi
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11585/542034
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