Flexing the Default Barrier
| Autor: | Gregor Dorfleitner, Tanja Veža, Paul Schneider |
|---|---|
| Jazyk: | němčina |
| Rok vydání: | 2011 |
| Předmět: |
502009 Corporate finance
Actuarial science Credit default swap Computer science ddc:330 330 Wirtschaft 502004 Banking management 101007 Financial mathematics Credit default swap index Corporate bond 502009 Finanzwirtschaft credit default swap structural model default boundary the Green function calibration iTraxx 502052 Betriebswirtschaftslehre 101007 Finanzmathematik 502004 Bankbetriebslehre Econometrics C13 G12 G13 G15 Dividend Asset (economics) Credit valuation adjustment 502052 Business administration General Economics Econometrics and Finance Finance Credit risk |
| Popis: | The paper introduces a Black-Cox-type structural model for credit default swaps (CDS). The existing literature on structural CDS pricing is extended by allowing a general functional form for the default barrier specified without reference to asset volatilities, dividend yields or interest rates. We develop a fast and robust algorithm to compute survival probabilities numerically. An empirical application suggests that the market-implied barrier is stable over time, with a possibly hump-shaped term structure. The implied barrier can be used for computing survival probabilities consistent with objective expectations of asset evolution, for pricing under counterparty risk, and for determining optimal corporate bond covenants. |
| Databáze: | OpenAIRE |
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