A Dynamic Model for Credit Index Derivatives

2009/11/09 by Louis Paulot, Paulot, Louis
Economics, Econometrics and Finance · #Banking stability, regulation, efficiency #Credit Risk and Financial Regulations #FOS: Economics and business #Pricing of Securities (q-fin.PR) #q-fin.PR

paper · pdf · doi:10.48550/arxiv.0911.1662

32 pages

arxiv created 2009/11/09 · openalex publication_date 2009/11/09 · arxiv updated 2009/12/01 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28

Abstract

We present a new model for credit index derivatives, in the top-down approach. This model has a dynamic loss intensity process with volatility and jumps and can include counterparty risk. It handles CDS, CDO tranches, Nth-to-default and index swaptions. Using properties of affine models, we derive closed formulas for the pricing of index CDS, CDO tranches and Nth-to-default. For index swaptions, we give an exact pricing and an approximate faster method. We finally show calibration results on 2009 market data.

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