Abstract
The paper re-examines and generalizes the construction of several variants of market models for forward CDS spreads, as first presented by Brigo [10]. We compute explicitly the joint dynamics for some families of forward CDS spreads under a common probability measure. We first examine this problem for single-period CDS spreads under certain simplifying assumptions. Subsequently, we derive, without any restrictions, the joint dynamics under a common probability measure for the family of one- and two-period forward CDS spreads, as well as for the family of one-period and co-terminal forward CDS spreads. For the sake of generality, we work throughout within a general semimartingale framework.
Mathematics Subject Classification (2000). 60H30, 91B70.
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Li, L., Rutkowski, M. (2011). Market Models of Forward CDS Spreads. In: Kohatsu-Higa, A., Privault, N., Sheu, SJ. (eds) Stochastic Analysis with Financial Applications. Progress in Probability, vol 65. Springer, Basel. https://doi.org/10.1007/978-3-0348-0097-6_21
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DOI: https://doi.org/10.1007/978-3-0348-0097-6_21
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