Simple Computational Methods For Pricing Equity Default Swaps

Abstract

ABSTRACT. An Equity Default Swap (EDS) is a hybrid credit-equity instrument which pays out a fixed sum upon the occurrence of an adverse equity or credit event. We describe two pricing methods and their associated accelerated simulation pricing engines. We find that when used in combination the engines result in a highly accurate and accelerated pricing system. This along with the system's inherent flexibility allows for the real-time pricing of the EDS. Therefore the system meets the needs of even the most demanding practitioners.

Keywords: Equity Default Swap, hybrid credit-equity instrument, equity, credit, pricing methods, accelerated simulation, real-time pricing