Default risk is one of the most important types of risks, and credit default swap (CDS) is one of the most effective financial instruments to cover such risks. The lack of these instruments may reduce investment attraction, particularly for international investors, and impose potential losses on the economy of the countries lacking such financial instruments, among them, Iran. After the 2007 fi...

In recent years, the market for credit default swaps (CDSs) has expanded dramatically. In these financial contracts, a sequence of payments is promised in return for protection against the credit losses in the event of default. By offering investors the chance to gain or sell risk exposure to a reference entity without buying or selling the underlying bond or loan, credit default swaps have gre...

A credit default swap (CDS) contract provides insurance against default. After a country defaults, the country and its lenders usually negotiate over the share of the defaulted debt to be repaid. This paper incorporates CDS contracts into a sovereign default model and demonstrates that the existence of a CDS market results in lower default probability, higher debt levels, and lower nancing cost...

Credit default swaps (CDS) have grown to be amulti-trillion-dollar, globally importantmarket. The academic literature onCDShas developed in parallel with the market practices, public debates, and regulatory initiatives in this market. We selectively review the extant literature, identify remaining gaps, and suggest directions for future research. We present a narrative including the following f...

significant aspect of the evolution of credit markets has been the development of credit-risk transfer through the use of derivatives.1 Globally, one of the fastest-growing derivative products is the credit default swap (CDS). This article describes the basic mechanics of a CDS, assesses the impact of CDSs on market efficiency, and considers the implications of the growing market for CDSs for f...

File reference: blackdef.tex We develop the theory of hedging a European call option in the Black model augmented by the possibility of default in the underlying asset. We model default as a drop to zero and we assume that the credit default swap rate is constant. In this setting, we show that the call's payoff can be perfect replicated by dynamic trading in the underlying futures and in credit...

In existing pricing theories, pricing of single-name credit default swaps (CDSs) and their options makes no reference to the prices of defaultable bonds, the underlying assets of those derivatives. Such a pricing practice does not exclude possible arbitrage across bond and CDS markets. In this paper, we introduce a new theory that treats the two markets as one and thus ensures price consistency...

This paper studies game-type credit default swaps that allow the protection buyer and seller to raise or reduce their respective positions once prior to default. This leads to the study of an optimal stopping game subject to early default termination. Under a structural credit risk model based on spectrally negative Lévy processes, we apply the principles of smooth and continuous fit to identif...

This paper presents a semi-analytical valuation method for basket credit derivatives in a flexible intensity-based model. Default intensities are modeled as correlated affine jump-diffusions. An empirical application documents that the model fits market prices of benchmark basket credit derivatives reasonably well, consistent with the observed correlation skew. Hence, I argue, contrary to comme...