Modelling the evolution of Credit Spreads using the Cox process within the HJM framework: a CDS option pricing model

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Abstract

In this paper a simulation approach for defaultable yield curves is developed within the Heath et al. (1992) framework. The default event is modelled using the Cox process where the stochastic intensity represents the credit spread. The forward credit spread volatility function is affected by the entire credit spread term structure. The paper provides the defaultable bond and credit default swap option price in a probability setting equipped with a subfiltration structure. The Euler–Maruyama stochastic integral approximation and the Monte Carlo method are applied to develop a numerical scheme for pricing. Finally, the antithetic variable technique is used to reduce the variance of credit default swap option prices.

Autore Pugliese

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  • C. CHIARELLA , V. FANELLI , S. MUSTI

Titolo volume/Rivista

EUROPEAN JOURNAL OF OPERATIONAL RESEARCH

Anno di pubblicazione

2011

ISSN

0377-2217

ISBN

Non Disponibile

Numero di citazioni Wos

Nessuna citazione

Ultimo Aggiornamento Citazioni

Non Disponibile

Numero di citazioni Scopus

12

Ultimo Aggiornamento Citazioni

Non Disponibile

Settori ERC

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Codici ASJC

Non Disponibile