Simple Computational Methods For Pricing Equity Default Swaps

13 Pages Posted: 31 May 2007

See all articles by Guanghua Cao

Guanghua Cao

Morgan Stanley

Nathan Coelen

Morgan Stanley

Andrea Ling

University of California, Berkeley - Haas School of Business

Roderick MacLeod

Rodel Tech Financial; U.C. Berkeley Master of Financial Engineering; MIT - B.S. Management Science / Finance

Date Written: 31 march 2006

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

Suggested Citation

Cao, Guanghua and Coelen, Nathan and Ling, Andrea and MacLeod, Roderick, Simple Computational Methods For Pricing Equity Default Swaps (31 march 2006). Available at SSRN: https://ssrn.com/abstract=988781 or http://dx.doi.org/10.2139/ssrn.988781

Guanghua Cao

Morgan Stanley ( email )

1585 Broadway
New York, NY 10019
United States

Nathan Coelen

Morgan Stanley ( email )

1585 Broadway
New York, NY 10036
United States

Andrea Ling

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

Roderick MacLeod (Contact Author)

Rodel Tech Financial ( email )

London
United Kingdom

HOME PAGE: http://www.rodeltechfin.com

U.C. Berkeley Master of Financial Engineering ( email )

310 Barrows Hall
Berkeley, CA 94720
United States

MIT - B.S. Management Science / Finance ( email )

Cambridge, MA 02136
United States