The Valuation of Credit Default Swap Options

Topics:
Investment and Capital Markets
Tags:
Finance,
Investment,
Model,
Option,
University Of Toronto,
Valuation,
Volatility
Source:
University of Toronto

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Overview: This article develops models for valuing credit default swaps and European credit default swap options. The model for valuing European credit default swap options is very similar to the standard market model for valuing European swap options. Once default probabilities and expected recovery rates have been estimated, it enables traders to calculate option prices from credit default swap spread volatilities and vice versa. The article concludes by presenting numerical results illustrating the properties of the models and estimating spread volatilities from historical data.

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Format: PDF | Size: 204KB | Date: Sep 2002 | Pages: 28

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