Abstract
This article provides a simple model to value a credit swap ofthe basket type. Unlike the previous literature, we considerthe joint survival probability of occurrence times of creditevents in terms of stochastic intensity processes under the assumptionof conditional independence. Based on the joint survival probability,such a credit swap can be valued under the risk-neutral valuationframework. Assuming that the default intensity processes followthe extended Vasicek model with a correlation structure, an analyticexpression of the valuation formula is derived. Some numericalexample is given to demonstrate the usefulness of our model.
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Kijima, M. Valuation of a Credit Swap of the Basket Type. Review of Derivatives Research 4, 81–97 (2000). https://doi.org/10.1023/A:1009628513231
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DOI: https://doi.org/10.1023/A:1009628513231