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.

Ballestra, L. V., Pacelli, G., Radi, D., Computing the survival probability in the Madan–Unal credit risk model: application to the CDS market, <<QUANTITATIVE FINANCE>>, 2017; 17 (2): 299-313. [doi:10.1080/14697688.2016.1189590] [https://hdl.handle.net/10807/238014]

Computing the survival probability in the Madan–Unal credit risk model: application to the CDS market

Radi, Davide
Ultimo
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
Inglese
Ballestra, L. V., Pacelli, G., Radi, D., Computing the survival probability in the Madan–Unal credit risk model: application to the CDS market, <<QUANTITATIVE FINANCE>>, 2017; 17 (2): 299-313. [doi:10.1080/14697688.2016.1189590] [https://hdl.handle.net/10807/238014]
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/10807/238014
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