The Pricing And Model Of Credit Default Swaps

Asset securitization and derivative products which are important devel-opment in modern financial markets, and credit derivatives are the logical extension of them. Along with the reform of financial system, financial com-petition will be more intense, financial risk more outstanding.So we need to introduce new credit risk management methods and techniques. Credit deriva-tives are developed in the late1990s, which are a new financial derivatives used to hedge credit risk. So the researches of credit derivatives pricing problems are increasingly urgent.This article mainly tells about the pricing and models of credit default swaps. There are single-name’s credit default swaps and a basket of credit default swaps in the credit default swaps. In the single-name’s credit default swap model.At first, under the condition of survival probability of bond is-suance company known, this part calculate the price of credit default swaps by no arbitrage principle. Secondary, based on structured methods, the part uses the expression of survival probability which is obtained by solving the ge-ometric brownian motion and Monte Carlo method to simulate the standard Brownian motion, which to calculate the number of survival probability.At last, we use CDS pricing model to calculate a concrete example and analyze due to time of CDS, expect recovery and the relationship between the volatility of the company and price of CDS.A basket of credit default swaps is divided for the first-to-default swaps and the Nth-to-default swaps. This part use single factor t-Copula model, which by the beta distribution, normal distribution, lognormal distribution and binomial distribution to simulate random recovery to price.At last, we discuss that random recovery rate which obey the above four kinds of distributions impact on credit spreads.The results found that, with the increase of the number of defaults, whether fixed or random recovery under a variety of distributions, its reason-able credit spreads are gradually reduced.Because with the increase of number of default, the cumulative occurrence probability of the lower,the present value of the expected loss will reduce,so credit spreads as reduce.The credit spreads obtained under random recovery of various distributions compared with fixed recovery.credit spreads than less the fixed recovery.So if using a fixed recovery pricing the Nth credit default swap will lead to overestimate the situation of credit spreads.Finally, we consider sensitivity analysis of important parameters under the random recovery of a variety of distribution model. These important pa-rameters including the risk rate h, issuance of time T, the degrees of freedom v, the correlation coefficients p, recovery rate of the sample mean μ, recovery rate of the sample standard deviation σ, etc.The results found that, with the increase of risk rate and the due time, credit spreads will be increase; But with the increase of correlation coefficient, the sample mean and the degrees of freedom, credit spreads will be reduced; And the sample standard deviation change had no significant effect on credit spreads.