A revised version of the Cathcart & El-Jahel model and its application to CDS market
The result's identifiers
Result code in IS VaVaI
<a href="https://www.isvavai.cz/riv?ss=detail&h=RIV%2F61989100%3A27510%2F21%3A10248694" target="_blank" >RIV/61989100:27510/21:10248694 - isvavai.cz</a>
Result on the web
<a href="https://link.springer.com/article/10.1007%2Fs10203-021-00350-x" target="_blank" >https://link.springer.com/article/10.1007%2Fs10203-021-00350-x</a>
DOI - Digital Object Identifier
<a href="http://dx.doi.org/10.1007/s10203-021-00350-x" target="_blank" >10.1007/s10203-021-00350-x</a>
Alternative languages
Result language
angličtina
Original language name
A revised version of the Cathcart & El-Jahel model and its application to CDS market
Original language description
The paper considers the pricing of credit default swaps (CDSs) using a revised version of the credit risk model proposed in Cathcart and El-Jahel (2003). Default occurs either the first time a signaling process breaches a threshold barrier or unexpectedly at the first jump of a Cox process. The intensity of default depends on the risk-free interest rate, which follows a Vasicek process, instead of a Cox-Ingersoll-Ross process as in the original model. This offers two advantages. On the one hand, it allows us to account for negative interest rates which are recently observed, on the other hand, it simplifies the formula for pricing CDSs. The goodness of fit of the model is tested using a dataset of CDS credit spreads related to European companies. The results obtained show a rather satisfactory agreement between theoretical predictions and market data, which is identical to the one obtained with the original model. In addition, the values of the calibrated parameters result to be stable over time and the semi-closed form solution ensures a very fast implementation. (C) 2021, The Author(s).
Czech name
—
Czech description
—
Classification
Type
J<sub>imp</sub> - Article in a specialist periodical, which is included in the Web of Science database
CEP classification
—
OECD FORD branch
50200 - Economics and Business
Result continuities
Project
<a href="/en/project/GJ20-25660Y" target="_blank" >GJ20-25660Y: Modeling credit risk and system risk in the non-life insurance sector.</a><br>
Continuities
P - Projekt vyzkumu a vyvoje financovany z verejnych zdroju (s odkazem do CEP)
Others
Publication year
2021
Confidentiality
S - Úplné a pravdivé údaje o projektu nepodléhají ochraně podle zvláštních právních předpisů
Data specific for result type
Name of the periodical
Rivista di Matematica per le Scienze Economiche e Sociali
ISSN
1593-8883
e-ISSN
—
Volume of the periodical
44
Issue of the periodical within the volume
2
Country of publishing house
IT - ITALY
Number of pages
37
Pages from-to
669-705
UT code for WoS article
000682649700001
EID of the result in the Scopus database
2-s2.0-85112657909