An Efficient Approach to Valuation of Credit Basket Products and Ratings Triggered Step-up Bonds

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An Efficient Approach to Valuation of Credit Basket Products and Ratings Triggered Step-up Bonds

by Tomasz Bielecki of the Illinois Institute of Technology,
Andrea Vidozzi of the Illinois Institute of Technology, and
Luca Vidozzi of the Illinois Institute of Technology

May 2, 2006

Abstract: We propose an efficient method for valuation of various classes of credit derivatives. The method is simulation based and is shown to be very flexible and very well suited for pricing complex basket products such as CDOs, CDO2s, FTDS, as well as for pricing options on some special step-up corporate bonds. Our approach implements methodology and results of [2] and [3].

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