The Valuation of Basket Credit Derivatives: A Copula Function ...
The Valuation of Basket Credit Derivatives: A Copula Function ...
The Valuation of Basket Credit Derivatives: A Copula Function ...
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<strong>Credit</strong> Swap Pricing:<br />
● Calculate the PV <strong>of</strong> Payment<br />
- 100 - Q(ti) if bond issuer defaults, but the seller does not<br />
- [100 - Q(ti)]Rc if both the bond issuer and the default<br />
protection seller defaults<br />
[ 100 − Q(<br />
t ] i ) Pr[<br />
R [ 100 − Q(<br />
t ) ]<br />
n ⎛<br />
ti<br />
1 < B ≤<br />
∑<br />
− τ<br />
⎜<br />
= 1 ⎝ C<br />
i Pr[ ti<br />
−1<br />
< τ<br />
● Calculate the PV <strong>of</strong> Premium<br />
● <strong>The</strong> Periodic or Level Premium X can be solved by<br />
equating the above two equations<br />
, τ<br />
, τ<br />
i B i c i<br />
∑ − n 1<br />
i=<br />
0<br />
X Pr[ τ<br />
> t , τ<br />
B<br />
i<br />
C<br />
><br />
t<br />
i<br />
t<br />
i<br />
≤<br />
t<br />
c<br />
] ⋅ D(<br />
t<br />
i<br />
><br />
)<br />
t<br />
] + ⎞<br />
•<br />
t ] ⎟<br />
≤ ⎠<br />
i<br />
D(<br />
t<br />
i<br />
)
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