Mark-to-Market Credit Index Option Pricing and Credit Volatility Index
15 Pages Posted: 12 Jun 2015 Last revised: 24 Jun 2015
Date Written: June 23, 2015
Credit index options cannot be priced as simple vanilla options. In this paper we derive the pricing formula using both replication method and linear annuity mapping. We develop a model-free process to calculate a VIX-like credit volatility index based on observable credit index options market. We imply all model parameters from market traded data.
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