Computing the survival probability in the Madan–Unal credit risk model: application to the CDS market

Luca Vincenzo Ballestra, Graziella Pacelli and Davide Radi ()

Quantitative Finance, 2017, vol. 17, issue 2, 299-313

Abstract: We obtain a quasi-analytical approximation of the survival probability in the credit risk model proposed in [Madan, D.B. and Unal, H., Pricing the risk of default. Rev. Deriv. Res., 1998, 2(2), 121–160]. Such a formula, which extensive numerical simulations reveal to be accurate and computationally fast, can also be employed for pricing credit default swaps (CDSs). Specifically, we derive a quasi-analytical approximate expression for CDS par spreads, and we use it to estimate the parameters of the model. The results obtained show a rather satisfactory agreement between theoretical and real market data.

Date: 2017
References: View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://hdl.handle.net/10.1080/14697688.2016.1189590 (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: https://EconPapers.repec.org/RePEc:taf:quantf:v:17:y:2017:i:2:p:299-313

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RQUF20

DOI: 10.1080/14697688.2016.1189590

Access Statistics for this article

Quantitative Finance is currently edited by Michael Dempster and Jim Gatheral

More articles in Quantitative Finance from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().