Pricing Credit Default Swap with Contagious Risk and Simulation

doi:10.1007/s12204-016-1699-y

Journal of shanghai Jiaotong University (Science) ›› 2016, Vol. 21 ›› Issue (1): 57-62.doi: 10.1007/s12204-016-1699-y

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Pricing Credit Default Swap with Contagious Risk and Simulation

HAO Ruili1,2* (郝瑞丽), ZHANG Jinqing1 (张金清), LIU Yonghui3 (刘永辉), HU Zhouhong4 (胡周红)

(1. Post-Doctoral Station of Applied Economics, School of Economics, Fudan University, Shanghai 200433, China; 2. School of Statistics and Mathematics, Shanghai Finance University, Shanghai 201209, China; 3. School of Business Information Management, Shanghai University of International Business and Economics, Shanghai 201620, China; 4. Department of Applied Mathematics, Shanghai University of Finance and Economics, Shanghai 200433, China)
(1. Post-Doctoral Station of Applied Economics, School of Economics, Fudan University, Shanghai 200433, China; 2. School of Statistics and Mathematics, Shanghai Finance University, Shanghai 201209, China; 3. School of Business Information Management, Shanghai University of International Business and Economics, Shanghai 201620, China; 4. Department of Applied Mathematics, Shanghai University of Finance and Economics, Shanghai 200433, China)

Online:2016-02-29 Published:2016-03-21
Contact: HAO Ruili (郝瑞丽) E-mail: haoruili13@163.com

Abstract

Abstract: This paper mainly studies the pricing of credit default swap (CDS) with the loan as the reference asset, and gives a model based on the obtained conclusions. In the contract of CDS, we consider that the default of the protection’s seller is correlated with the stochastic interest rate following Vasicek model and the default state of the reference firm. We give the pricing formula of CDS and analyze the effect of the contagious risk between the counterparties on the pricing of CDS.

Key words: credit default swap (CDS)| contagious risk| Vasicek interest rate

摘要： This paper mainly studies the pricing of credit default swap (CDS) with the loan as the reference asset, and gives a model based on the obtained conclusions. In the contract of CDS, we consider that the default of the protection’s seller is correlated with the stochastic interest rate following Vasicek model and the default state of the reference firm. We give the pricing formula of CDS and analyze the effect of the contagious risk between the counterparties on the pricing of CDS.

关键词: credit default swap (CDS)| contagious risk| Vasicek interest rate

CLC Number:

O175.2

HAO Ruili1,2* (郝瑞丽), ZHANG Jinqing1 (张金清), LIU Yonghui3 (刘永辉), HU Zhouhong4 (胡周红). Pricing Credit Default Swap with Contagious Risk and Simulation[J]. Journal of shanghai Jiaotong University (Science), 2016, 21(1): 57-62.

References 12

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Pricing Credit Default Swap with Contagious Risk and Simulation

Pricing Credit Default Swap with Contagious Risk and Simulation

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[1]	CHANG Hao-1, 2 , RONG Xi-Min-3. Portfolio Optimization with Liability under the Vasicek Model [J]. Journal of Shanghai Jiaotong University, 2013, 47(03): 465-471.
[2]	WANG An-Jiao-1, 2 , WU Yan-Jin-1, YE Zhong-Xing-1, 3 . Pricing of Credit Default Swap with a Hyperbolic Contagion Model [J]. Journal of Shanghai Jiaotong University, 2011, 45(12): 1852-1856.