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

Abstract

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.

Suggested Citation

Yang, Zhaoyang and Dobrek, Lukasz Maciej, Mark-to-Market Credit Index Option Pricing and Credit Volatility Index (June 23, 2015). Available at SSRN: https://ssrn.com/abstract=2616370 or http://dx.doi.org/10.2139/ssrn.2616370

Zhaoyang Yang (Contact Author)

Markit Group ( email )

Level 5
2 More London Riverside
London, SE1 2AP
United Kingdom

Lukasz Maciej Dobrek

Markit Group ( email )

Level 5
2 More London Riverside
London, SE1 2AP
United Kingdom

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