Bond and CDS Pricing with Credit Events

Authors

  • Yen Trinh Department of Mathematics, University of Central Florida, Orlando, Florida,

DOI:

https://doi.org/10.26713/jims.v10i3.907

Keywords:

Credit default swaps, Corporate bond, Sovereign bond, Recovery of treasury, Recovery of nominal, Survival probability, Default risk, Migration risk

Abstract

A calibration methodology for default probability curves to bond and credit default swap (CDS) pricing is developed. Recovery of nominal (RON) policy and recovery of treasury (ROT) policy for the exposure at default (EAD) are considered for bond pricing. The paper presents the results of calculations of possible profit and loss (PnL) on bond portfolio and CDS portfolio.

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References

T. Bjork, Arbitrage Theory in Continuous Time, Oxford Finance (2009).

A.N. Bomfim, Understanding Credit Derivatives and Related Instruments, Academic Press (2005).

M. Choudhry, Fixed Income Securities and Derivatives Handbook: Analysis and Valuation, 2nd edition, Wiley (2010).

J.C. Hull, Option Future and Other Derivative, Joseph L. Rotman School of Management, University of Toronto, Prentice Hall (2012).

H. John, M. Predescu and A. White, The relationship between credit default swap spreads, bond yields, and credit rating announcements, Journal of Banking & Finance 28(11) (2004), 2789 – 2811, DOI: 10.1016/j.jbankfin.2004.06.010.

Y. Trinh, T. Duong and L. Nguyen, Yield spread estimation with credit events, Journal of Informatics and Mathematical Sciences 8(4) (2016), 235 – 244, DOI: 10.26713/jims.v8i4.553.

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Published

2018-09-30
CITATION

How to Cite

Trinh, Y. (2018). Bond and CDS Pricing with Credit Events. Journal of Informatics and Mathematical Sciences, 10(3), 383–390. https://doi.org/10.26713/jims.v10i3.907

Issue

Vol. 10 No. 3 (2018)

Section

Research Articles

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