Pricing Credit Default Swaps Under Fractal Structural Model

This paper considers a credit default swaps (CDS) pricing under a fractal structural model, where the asset value is generated by a geometric fractional Brownian motion. In contrast to the classical structural model which is based on the geometric standard Brownian motion, the fractal one with long-...

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Bibliographic Details
Published in2009 International Conference on Management of e-Commerce and e-Government pp. 526 - 529
Main Author Tianyun Ma
Format Conference Proceeding
LanguageEnglish
Published IEEE 01.09.2009
Subjects
Asset management
Bonding
Brownian motion
Conference management
Cost accounting
credit default swaps
Fractals
fractional Brownian motion
Hurst parameter
Insurance
Pricing
Protection
self-similar
Solid modeling
volatility parameter
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Summary:This paper considers a credit default swaps (CDS) pricing under a fractal structural model, where the asset value is generated by a geometric fractional Brownian motion. In contrast to the classical structural model which is based on the geometric standard Brownian motion, the fractal one with long-dependent and self-similar behaviors matches the real asset data better. We analyze the ratio of a firm's asset value to the threshold level via the fractal structural model, and derive the first-to-default probability of the firm. Based on this, we obtain the CDS pricing formula, and also present the estimation algorithm for associated parameters and some numerical computations.
ISBN:9780769537788
0769537782
DOI:10.1109/ICMeCG.2009.23