Interest Rate Based On A Random Jump - Diffusion Process Credit Default Swaps Pricing

As a main kind of credit derivatives, credit default swap is a new method to manage credit risk. Its main idea is to transfer the credit risk to those investors who would like to bear the risk through agreement. In return, it gives out some profit or fees. So credit default swaps can reduce the concentration degree of credit risk in the prerequisite of not influencing the relationship with customers, therefore avoid the credit risks effectively. Credit default swaps can satisfy the urgent demand of modern credit risk management and the financial market reform. Exploration on credit default swaps will help introducing of credit derivatives into our country, thus will give full play to their function of shifting credit risk, making this new risk management tool serve our financial market early.In recent years, credit default swaps welcomed increasingly by market participants in the financial market, many financial scholars and financial engineers have made theoretical study and practical applications on it. This paper is to discuss the issues about pricing of credit default swaps, establishing a model that interest rates follow an expanding process of the Vasicek random process, the value of Reference Company's assets follow the jump-diffusion process. the model not only describes the diffusion process, namely, the usual factors which affect the value of reference company's assets, which effect the price of credit default swaps, but also consider the jump-diffusion process of unexpected events, namely, the fluctuations of the value of the reference company's assets (the rate jumps) and the strength of jump, which effect the price of credit default swaps, it gives the default probability by structural approach. On this basis, this article makes a study about the value of credit default swaps, containing the individual assets, the corresponding side and three sides risk assets of the credit default swaps, and it has strong reality significance.