THE VALUATION OF THE BASKET CDS IN A PRIMARY-SUBSIDIARY MODEL

Jianwei Lin (), Gechun Liang (), Sen Wu and Harry Zheng
Additional contact information
Jianwei Lin: Department of Mathematics, Tongji University, Shanghai 200092, China; Department of Mathematics, Putian University, Putian 351100, China
Sen Wu: Department of Mathematics, Tongji University, Shanghai 200092, China
Harry Zheng: Department of Mathematics, Imperial College, London SW7 2BZ, UK

Asia-Pacific Journal of Operational Research (APJOR), 2011, vol. 28, issue 02, pages 213-238

Abstract: This paper considers the valuation problem of basket CDSs. Based on the construction of total hazard rates, the paper develops the work of Zheng and Jiang Zheng and Jiang (2009) from the homogenous case to the primary-subsidiary heterogenous case in the interacting intensity framework, and obtains the corresponding joint density of the default time. Moreover, the paper derives the valuation formulae for the basket CDSs with and without counterparty risk. Numerical results robustly show that, under certain conditions, using the analytical pricing formulae derived in this paper is more efficient than the Monte Carlo method for the basket CDS valuation.

Keywords: Default intensity; contagion; counterparty risk; primary-subsidiary model; basket CDS (search for similar items in EconPapers)
Date: 2011
References: Add references at CitEc
Citations Track citations by RSS feed

Downloads: (external link)
http://www.worldscinet.com/cgi-bin/details.cgi?type=pdf&id=pii:S0217595911003144 (application/pdf)
http://www.worldscinet.com/cgi-bin/details.cgi?typ ... ii:S0217595911003144 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:wsi:apjorx:v:28:y:2011:i:02:p:213-238

Ordering information: This journal article can be ordered from

Access Statistics for this article

Asia-Pacific Journal of Operational Research (APJOR) is edited by Gongyun Zhao

More articles in Asia-Pacific Journal of Operational Research (APJOR) from World Scientific Publishing Co. Pte. Ltd.
Series data maintained by Tai Tone Lim ().