Credit Risk Models: Pricing And Application

Pricing of derivative contracts and financial risk management is the main area of financial economics and financial engineering.Credit risk belongs to financial risk.In this thesis we discuss the pricing of credit risk.There are broadly speaking two approaches to model the credit risk:the structural approach and reduced form approach. The structural approach uses option pricing theory to price the contingent claims.We compare the credit spread between Black-Scholes-Merton model and Black-Cox model,giving the anal-ysis of sensitivity of the parameters.Reduced form approaches obtain the zero bond pricing formula in the Cox framework,more,the risk neutral pric-ing formula in the genenal framework, especially the formula in the affine framework.The analogy between default-free term structure and the pric-ing formula of defaultable zero bond provides the base of parameter esti-mation.Kalman filtering approach and quasi-likelihood function are used to estimate the parameters of intensity model.We give an implementation of the problem.