Optimal valuation of American callable credit default swaps under drawdown of Lévy insurance risk process

• Published in: Insurance, mathematics & economics Vol. 93; pp. 168 - 177
• Main Authors: Palmowski, Z., Surya, B.A.
• Format: Journal Article
• Language: English
• Published: Amsterdam Elsevier B.V 01.07.2020; Elsevier Sequoia S.A
• Subjects: Assets; Convexity; Credit; Credit default swaps; Credit risk; Drawdown; Insurance; Insurance policies; Insurance premiums; Lévy process; Martingales; Optimization; Regularity; Stochastic processes; swaps; Uncertainty; Uniqueness; Valuation; Credit risk; swaps; Lévy process; Drawdown; Credit default swaps

This paper discusses the valuation of credit default swaps, where default is announced when the reference asset price has gone below certain level from the last record maximum, also known as the high-water mark or drawdown. We assume that the protection buyer pays premium at a fixed rate when the as...