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Calibrating risk-neutral default correlation

Elisa Luciano

ICER Working Papers - Applied Mathematics Series from ICER - International Centre for Economic Research

Abstract: The implementation of credit risk models has largely relied on the use of historical default dependence, as proxied by the correlation of equity returns. However, as is well known, credit derivative pricing requires risk-neutral dependence. Using the copula methodology, we infer risk neutral dependence from CDS data. We also provide a market application and explore its impact on the fees of some credit derivatives.

JEL-codes: G12 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2005-05
New Economics Papers: this item is included in nep-fin and nep-rmg
References: View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Calibrating risk‐neutral default correlation (2007) Downloads
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