Bond and CDS Pricing with Credit Events

Yen Trinh

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.


Keywords


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

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References


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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.




DOI: http://dx.doi.org/10.26713%2Fjims.v10i3.907

eISSN 0975-5748; pISSN 0974-875X