In this paper we discuss the pricing of Constant Maturity Credit Default Swaps (CMCDS) under single sided jump models. The CMCDS offers default protection in exchange for a floating premium which is periodically reset and indexed to the market spread on a CDS with constant maturity tenor written on the same reference name. By setting up a firm value model based on single sided Lévy models we ca...

In the paper we detail the reduced form or hazard rate method of pricing credit default swaps, which is a market standard. We then show exactly how the ISDA standard CDS model works, and how it can be independently implemented. Particular attention is paid to the accrual on default formula: We show that the original formula in the standard model is slightly wrong, but more importantly the propo...

Corporate defaults may be triggered by some major market news or events such as financial crises or collapses of major banks or financial institutions. With a view to develop a more realistic model for credit risk analysis, we introduce a new type of reduced-form intensity-based model that can incorporate the impacts of both observable “trigger” events and economic environment on corporate defa...

The paper presents a simulation framework for measuring and managing the default risk of a loan portfolio. Through the dependency of counterparty default on a systematic risk factor, we explore the economic capital requirement for a hypothetical credit portfolio. The study employs bivariate standard normal distribution for mapping asset return correlations into default correlations. Monte Carlo...

This paper estimates the price for restructuring risk in the U.S. corporate bond market during 1999-2005. Comparing quotes from default swap (CDS) contracts with a restructuring event and without, we find that the average premium for restructuring risk represents 6% to 8% of the swap rate without restructuring. We show that the restructuring premium depends on firmspecific balance-sheet and mac...

We propose a discrete-time affine pricing model that simultaneously allows for (i) the presence of systemic entities by departing from no-jump condition on factors’ conditional distribution, (ii) contagion effects, and (iii) credit events. Our framework delivers explicit formulas default-sensitive securities such as bonds default swaps (CDSs). estimate euro-area multicountry version address eco...

The paper examines the impact of countries’ credit ratingschanges on cost defaults swaps premium. It is assumed statisticalsignificance abnormal returns due to changes in ratings assignedby agencies. has been put hipothesis that events convey newinformation and lead significant reactions. study usedthe assigned by Standard & Poor's Moody's for period fromJanuary 2005 November 2015 spreads f...