An Exact Formula for Default Swaptions Pricing in the SSRJD Stochastic Intensity Model

DefaultRisk.com the web's biggest credit risk modeling resource.

Submit Your Paper

Fitch Ratings Jobs

[ Worldwide]

Post Your Résumé
For Recruiters

Featured Book

Financial Modelling with Jump Processes
by Rama Cont, Peter Tankov, Chapman & Hall/CRC, (December 30, 2003), Hardcover, 552 pages.
How to do Lévy Processes

Training Discounted for DefaultRisk.com visitors only:

The Mathematics of Credit Derivatives: The Essential Credit Modelling and Pricing Companion
by Philipp J. Schönbucher,
WBS Training, August 2003, DVD / Interactive CD-ROM

Sponsor:
Shop at Amazon.com and support DefaultRisk.com

An Exact Formula for Default Swaptions Pricing in the SSRJD Stochastic Intensity Model

by Damiano Brigo of Q-SCI, DerivativeFitch, and
Naoufel El-Bachir of University of Reading

November 8, 2007

Abstract: We develop and test a fast and accurate semi-analytical formula for single-name default swaptions in the context of the shifted square root jump diffusion (SSRJD) default intensity model. The formula consists of a decomposition of an option on a summation of survival probabilities in a summation of options on the underlying survival probabilities, where the strike for each option is adjusted.

JEL Classification: C63, C65, G12, G13.

Keywords: Credit derivatives, Credit Default Swap, Credit Default Swaption, Jump-diffusion, Stochastic intensity, Doubly stochastic Poisson process, Cox process, Semi-Analytic formula, Numerical integration.

Books Referenced in this Paper: (what is this?)