Swap Pricing with Two-Sided Default Risk in a Rating-Based Model
Copenhagen Business School - Department of Finance
University of Copenhagen - Department of Statistics and Operations Research
This paper analyzes the pricing of defaultable securities in rating-based models where the default of more than one agent is involved. We extend the model of Duffie and Huang (1996) to a framework which explicitly takes into account the rating of each party. Our extension allows us to investigate the effects on swap spreads of early termination provisions, i.e., credit triggers, which are linked to the ratings of contracting parties.
Number of Pages in PDF File: 30
Keywords: Swaps, default risk
JEL Classification: G13working papers series
Date posted: March 29, 2001
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