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http://ssrn.com/abstract=1064381
 
 

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A Comparative Analysis of Basket Default Swaps Pricing Using the Stein Method


Marian Ciuca


Pricing Partners

Dorinel Bastide


Pricing Partners

Eric Benhamou


Thomson Reuters

December 19, 2007

Pricing Partners Working Paper

Abstract:     
Using the Stein numerical method, introduced by El Karoui and Jiao {ElKJ} and El Karoui, Jiao and Kurtz {ElKJK}, we compare, in terms of accuracy and efficiency, the pricing of the basket default swaps (NTDs and CDO Tranches). In the Factor Copula Model framework, we compare the following copula functions: 1 factor and 3 factors Gaussian copula, Clayton copula, Marshall-Olkin copula, Double-t copula and Student copula. Stein numerical method is also compared with the Recursive method of Hull and White, with the Probability Generating Function method (an exact Fourier transform like method) and with the Monte Carlo method.

Number of Pages in PDF File: 19

Keywords: Stein method, copula, CDO, credit derivatives

JEL Classification: G12,G13

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Date posted: December 6, 2007 ; Last revised: December 24, 2007

Suggested Citation

Ciuca, Marian and Bastide, Dorinel and Benhamou, Eric, A Comparative Analysis of Basket Default Swaps Pricing Using the Stein Method (December 19, 2007). Available at SSRN: http://ssrn.com/abstract=1064381 or http://dx.doi.org/10.2139/ssrn.1064381

Contact Information

Marian Ciuca (Contact Author)
Pricing Partners ( email )
Paris Cybervillage
204 Rue de crimée
Paris, 75019
France
HOME PAGE: http://www.pricingpartners.com
Dorinel Bastide
Pricing Partners ( email )
Paris Cybervillage
204 Rue de crimée
Paris, 75019
France
HOME PAGE: http://www.pricingpartners.com
Eric Benhamou
Thomson Reuters ( email )
6 Rue Rougemont
Paris, 75009
France
HOME PAGE: http://www.thomsonreuters.com
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