A revised version of the Cathcart & El-Jahel model and its application to CDS market

Kód výsledku v 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>

Výsledek na webu

<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>

Jazyk výsledku

angličtina

Název v původním jazyce

A revised version of the Cathcart & El-Jahel model and its application to CDS market

Popis výsledku v původním jazyce

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).

Název v anglickém jazyce

A revised version of the Cathcart & El-Jahel model and its application to CDS market

Popis výsledku anglicky

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).

Druh

J_imp - Článek v periodiku v databázi Web of Science

CEP obor

—

OECD FORD obor

50200 - Economics and Business

Projekt

<a href="/cs/project/GJ20-25660Y" target="_blank" >GJ20-25660Y: Modelování kreditního a systémového rizika v sektoru neživotního pojištění</a><br>

Návaznosti

P - Projekt vyzkumu a vyvoje financovany z verejnych zdroju (s odkazem do CEP)

Rok uplatnění

2021

Kód důvěrnosti údajů

S - Úplné a pravdivé údaje o projektu nepodléhají ochraně podle zvláštních právních předpisů

Název periodika

Rivista di Matematica per le Scienze Economiche e Sociali

ISSN

1593-8883

e-ISSN

—

Svazek periodika

44

Číslo periodika v rámci svazku

2

Stát vydavatele periodika

IT - Italská republika

Počet stran výsledku

37

Strana od-do

669-705

Kód UT WoS článku

000682649700001

EID výsledku v databázi Scopus

2-s2.0-85112657909