The credit derivatives market has experienced remarkable growth over the past decade. As such, there is a growing interest in tools for pricing of the most prominent credit derivative, the credit default swap (CDS). In this paper, we propose a heuristic algorithm for pricing of basket default swaps (BDS). For this purpose, genetic network programming (GNP), which is one of the recent evolutiona...

In this paper, a normal inverse Gaussian factor model is developed to describe the fat-tailed feature of the default distribution of reference entities in order to study basket default swaps pricing. Based on this model, the explicit formula for the distribution of the kth default time is accurately obtained by making use of order statistics, and the closed forms of the price of BDS at the kth ...

On computational methods for the valuation of credit derivatives Wanhe Zhang Doctor of Philosophy Graduate Department of Computer Science University of Toronto 2010 A credit derivative is a financial instrument whose value depends on the credit risk of an underlying asset or assets. Credit risk is the possibility that the obligor fails to honor any payment obligation. This thesis proposes four ...

The valuation of basket default swaps depends crucially on the joint default probability of the underlying assets in the basket. It is known that this probability can be modeled by means of a copula function which links the marginal default probabilities to a joint probability. The valuation bears risk due to the uncertainty of the copula, the relation of the assets to each other and the margin...

In this paper we consider an analytical valuation of Basket Default Swaps. Our solution is based on a continuous-time model in a conditional independence framework. We use the order statistics of the default times of the names in the basket to find a recursive algorithm for computation of the risk-neutral distribution of the default process of the basket. We derive an analytical expression for ...

In the paper we study dynamics of the arbitrage prices of credit default swaps within a hazard process model of credit risk. We derive these dynamics without postulating that the immersion property is satisfied between some relevant filtrations. These results are then applied so to study the problem of replication of general defaultable claims, including some basket claims, by means of dynamic ...

A basket default swap (BDS) is a credit derivative with contingent payments that are triggered by a combination of default events of the reference entities. A forwardstarting basket default swap (FBDS) is a BDS starting at a specified future time. Existing analytic or semi-analytic methods for pricing FBDS are time consuming due to the large number of possible default combinations before the BD...

We consider a factor approach to the pricing of basket credit derivatives and synthetic CDO tranches. Our purpose is to deal in a convenient way with dependent defaults for a large number of names. We provide semi-explicit expressions of the stochastic intensities of default times and pricing formulae for basket default swaps and CDO tranches. Two cases are studied in detail: mean-variance mixt...