The Study On Pricing Of Basket Credit Default Swaps Based On CreditRisk+Model Method

The appearance of Credit Derivative Products not only improves the revenueposition of the banking capital, but also supplys the banks with a method on how tomanage the credit combination. The most common and simplest product in CreditDefault Products is the Credit Default Swap. It can reduce the credit risk of bankseffectively and develop rapidly in the international market. With the fully opening offinancial market, competition between commercial banks of China and fraternityabroad is intense. Adopting Credit Default Products to deal with the credit risk thatexit in the interior of commercial banks of China is necessary and feasible.The meaning of Credit Default Swap is that its sellers pay fees to the investorsregularly and receive contract compensations from Capital Default. But for somecapitals which have lower level credit risk, it is difficult for the banks to sign theCredit Default Swap contract with the investors. So they pack other capitals indifferent risk level while signing the contract, which compose the Credit DefaultSwap. By an advanced arrangement, Basket Credit Default Swap——they can getloss compensations if there is a certain amount of Capital Default from the investors.It is essential to fix a reasonable price for sale, and this paper will study CreditDefault Swap on the pricing problems.In this paper, the pricing methods are based on the CreditRisk+model. At thevery beginning, the author introduce assumptions in independent condition under thesimplified model to process the CreditRisk+model dynamically. We calculate theprobability of Capital Default and then make key contact with this probability andpricing formula. Thus, we can calculate the dominant expressions of the pricing.