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

DOI10.1007/S10203-021-00350-XMaRDI QIDQ2064595zbMATH OpenOpenAlexFDO

Authors Davide Radi, Vu Hoang, Gabriele Torri, Hana Dvořáčková

Publication date 6 January 2022

Published in Decisions in Economics and Finance (Search for Journal in Brave)

Copyright license Creative Commons Attribution 4.0 International

Full work available at URL https://doi.org/10.1007/s10203-021-00350-x

zbMATH Keywords

credit default swapscredit riskhybrid models

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20) Credit risk (91G40)

Review text

The authors are concerned with the pricing of credit default swaps. In previous research, a hybrid model of \textit{L. Cathcart} and \textit{L. El-Jahel} [Quant. Finance 6, No. 3, 243--253 (2006; Zbl 1136.91474)] has been proposed. In this paper, the intensity of the default follows from a Vašíček model rather than the CIR interest rate model. This allows for the inclusion of negative interest rates. Also, this approach permits for more efficient use of computer time for calculating prices. This credit model should be of interest to academics and practitioners alike.

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Cited in

(2)

• CDS calibration under an extended JDCEV model
• Modelling the evolution of credit spreads using the Cox process within the HJM framework: a CDS option pricing model

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