On the single name CDS price under structural modeling

Date

2014-03-15

Author

GOKGOZ, I. H.
Uğur, Ömür
Okur, Y. Yolcu

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Regulators, banks and other market participants realized that true assessment of the credit risk is more critical and complex than their ex-ante appraisals after the US Credit Crunch. They have turned their attention to complex credit risk models and credit instruments such as credit derivatives. Credit default swap contracts (CDSs) are the most common credit derivatives used for speculation and hedging purposes in the credit markets. Thus, in this paper we fundamentally study the pricing of a single name CDS via the discounted cash flow method with survival probability functions of two pioneer structural credit risk models, Merton model and Black-Cox model with constant barrier. Hence, this approach is not only a new one, but also provides a practical technique to price CDSs using publicly available data of equity returns. Crown Copyright (C) 2013 Published by Elsevier B.V. All rights reserved.

Subject Keywords

Credit risk, Credit crisis, Credit derivatives, Structural models, Credit default swap

URI

https://hdl.handle.net/11511/32376

Journal

JOURNAL OF COMPUTATIONAL AND APPLIED MATHEMATICS

DOI

https://doi.org/10.1016/j.cam.2013.07.052

Collections

Graduate School of Applied Mathematics, Article

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Citation Formats

I. H. GOKGOZ, Ö. Uğur, and Y. Y. Okur, “On the single name CDS price under structural modeling,” JOURNAL OF COMPUTATIONAL AND APPLIED MATHEMATICS, pp. 406–412, 2014, Accessed: 00, 2020. [Online]. Available: https://hdl.handle.net/11511/32376.