Pricing of Basket Default Swaps Based on Factor Copulas and NIG | Zendy

Ping Li | Zendy; Jie Liu | Zendy; Xinyun Zhang | Zendy; Guangdong Huang | Zendy

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Pricing of Basket Default Swaps Based on Factor Copulas and NIG

Author(s) -

Ping Li,

Jie Liu,

Xinyun Zhang,

Guangdong Huang

Publication year - 2015

Publication title -

procedia computer science

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 0.334

H-Index - 76

ISSN - 1877-0509

DOI - 10.1016/j.procs.2015.07.046

Subject(s) - computer science , factor (programming language) , itraxx , credit default swap , credit derivative , synthetic cdo , credit risk , finance , computer security , business , credit valuation adjustment , credit reference , credit history , programming language

Due to the European debt crisis, the credit default swap (CDS) has been brought back to the spotlight of the financial market. At the meantime, the basket default swaps (BDS) emerges as the hottest issue amid the growing researches about CDS. It is extremely significant to define the correlations between the underlying assets and the default time. The copula approach can accurately specify the joint distribution. In this paper, the factors affecting the company's valuation are classified into systematic factors and non-systematic factors. The fact-based statistics are utilized to analyze the distribution of systematic factors. Then we obtain the samples’ default information from the bond market and the correlation of the samples from stock market. We use the factor copula model to simulate the whole sample's distribution and the correlation between the underlying assets, and then give the price for a BDS

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