Skip to main content
placeholder image

Analytically Pricing Credit Default Swaps under a Regime-Switching Model

Journal Article


Abstract


  • In this paper, we consider the valuation of a CDS (credit default swap) contract when the reference asset is assumed to follow a regime-switching model with the volatility allowed to jump among different states. Our motivation originates from empirical evidence demonstrating the existence of regime-switching in real markets. The default probability is analytically derived first, based on which a closed-form formula for the CDS price is obtained so that it can be easily implemented for practical purposes. Finally, numerical experiments are carried out to show quantitatively some properties of the CDS price under the regime-switching model.

Authors


  •   Chen, Wenting (external author)
  •   He, Xinjiang
  •   Qiu, Xinzi (external author)

Publication Date


  • 2019

Citation


  • Chen, W., He, X. & Qiu, X. (2019). Analytically Pricing Credit Default Swaps under a Regime-Switching Model. Fluctuation and Noise Letters, 18 (3), 1950021-8-1950021-13.

Scopus Eid


  • 2-s2.0-85063107457

Start Page


  • 1950021-8

End Page


  • 1950021-13

Volume


  • 18

Issue


  • 3

Place Of Publication


  • Singapore

Abstract


  • In this paper, we consider the valuation of a CDS (credit default swap) contract when the reference asset is assumed to follow a regime-switching model with the volatility allowed to jump among different states. Our motivation originates from empirical evidence demonstrating the existence of regime-switching in real markets. The default probability is analytically derived first, based on which a closed-form formula for the CDS price is obtained so that it can be easily implemented for practical purposes. Finally, numerical experiments are carried out to show quantitatively some properties of the CDS price under the regime-switching model.

Authors


  •   Chen, Wenting (external author)
  •   He, Xinjiang
  •   Qiu, Xinzi (external author)

Publication Date


  • 2019

Citation


  • Chen, W., He, X. & Qiu, X. (2019). Analytically Pricing Credit Default Swaps under a Regime-Switching Model. Fluctuation and Noise Letters, 18 (3), 1950021-8-1950021-13.

Scopus Eid


  • 2-s2.0-85063107457

Start Page


  • 1950021-8

End Page


  • 1950021-13

Volume


  • 18

Issue


  • 3

Place Of Publication


  • Singapore