Haworth, Helen and Reisinger, Christoph and Shaw, William T. (2006) Modelling bonds and credit default swaps using a structural model with contagion. Quantitative Finance . (Submitted)
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This paper develops a two-dimensional structural framework for valuing credit default swaps and corporate bonds in the presence of default contagion. Modelling the values of related firms as correlated geometric Brownian motions with exponential default barriers, analytical formulae are obtained for both credit default swap spreads and corporate bond yields. The credit dependence structure is influenced by both a longer-term correlation structure as well as by the possibility of default contagion. In this way, the model is able to generate a diverse range of shapes for the term structure of credit spreads using realistic values for input parameters.
|Subjects:||O - Z > Partial differential equations|
O - Z > Probability theory and stochastic processes
|Research Groups:||Oxford Centre for Industrial and Applied Mathematics|
Mathematical and Computational Finance Group
|Deposited By:||Christoph Reisinger|
|Deposited On:||11 Jul 2007|
|Last Modified:||20 Jul 2009 14:23|
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- Modelling bonds and credit default swaps using a structural model with contagion. (deposited 12 Jan 2007)
- Modelling bonds and credit default swaps using a structural model with contagion. (deposited 11 Jul 2007) [Currently Displayed]
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