TY - JOUR
T1 - Computing the survival probability in the Madan–Unal credit risk model: application to the CDS market
AU - Ballestra, Luca Vincenzo
AU - Pacelli, Graziella
AU - Radi, Davide
PY - 2017
Y1 - 2017
N2 - 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.
AB - 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.
KW - CDS
KW - Credit default swap
KW - Survival probability
KW - Madan–Unal model
KW - Default risk
KW - CDS
KW - Credit default swap
KW - Survival probability
KW - Madan–Unal model
KW - Default risk
UR - http://hdl.handle.net/10807/238014
U2 - 10.1080/14697688.2016.1189590
DO - 10.1080/14697688.2016.1189590
M3 - Article
SN - 1469-7688
VL - 17
SP - 299
EP - 313
JO - Quantitative Finance
JF - Quantitative Finance
ER -