Pricing of credit -risk derivatives: A numerical implementation.
Item
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Title
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Pricing of credit -risk derivatives: A numerical implementation.
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Identifier
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AAI3008812
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identifier
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3008812
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Creator
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Bradshaw, Noland John.
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Contributor
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Adviser: Salih Neftci
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Date
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2001
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Language
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English
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Publisher
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City University of New York.
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Subject
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Economics, Finance
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Abstract
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Based on expanding the Heath-Jarrow-Morton term-structure model to allow for defaultable debt, this study examines the implementation of the Das and Sundaram (1999) framework for modeling risky debt and valuing credit-risk derivatives on a simple portfolio of risky debt. The flexible framework of the Das-Sundaram model allows implementation, based on observables, to the maximum extent possible, while working directly with the evolution of spreads; rather than following the procedure of implying out the behavior of spreads from assumptions concerning the default process. This implementation uses Garbade (1988) value of a basis point-weighted average of the spreads with the industry practice of using the value-weighted averages of a position in the portfolio. The study takes advantage of the recursive representation of the risk-neutral drifts in the Das-Sundaram framework that facilitates implementation and makes it possible to handle path-dependence and early exercise features without difficulty. Further more, a simple statistical test of whether default rates follow a Markov process, finds that they do not. This result has implications for work that typically assumes that default rates follow a Markov process.
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Type
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dissertation
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Source
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PQT Legacy CUNY.xlsx
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degree
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Ph.D.
