A Simulation Model for Pricing the Spread in a Credit Default Swap: Application and Analysis#

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Authors

  • Madhvi Sethi
     Associate Professor, Symbiosis Institute of Business Management Bengaluru, Symbiosis International University, Pune - 412115, Maharashtra ,IN
  • Parthiv Thakkar
     Student Research Assistant, Symbiosis Institute of Business Management Bengaluru, Symbiosis International University, Pune - 412115, Maharashtra ,IN
  • Zahid M. Jamal
     Student Research Assistant, Symbiosis Institute of Business Management Bengaluru, Symbiosis International University, Pune - 412115, Maharashtra ,IN

DOI:

https://doi.org/10.18311/sdmimd/2018/20024

Keywords:

Credit Default Swap, Simulation, Spreads.
Creating Brand Equity

Abstract

This paper explores pricing the contract of a Credit Default Swap (CDS) using a simulation model. It attempts to determine the spread value which is a periodic payment to be made by the protection buyer. It also helps in identifying the factors that should be taken into account to determine the true value of the payment which would hedge the risk in case of a credit event by the issuer of the underlying asset. The paper uses the Hull and White pricing model for creating the simulation model. This model is then applied to analyse CDSs of countries having different credit ratings. The paper using the model analyses the actual and estimated spread of the different countries and discusses the possible reasons for the same. 

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Published

2018-03-17

How to Cite

Sethi, M., Thakkar, P., & Jamal, Z. M. (2018). A Simulation Model for Pricing the Spread in a Credit Default Swap: Application and Analysis<sup>#</sup>. SDMIMD Journal of Management, 9(2), 9–18. https://doi.org/10.18311/sdmimd/2018/20024

Issue

Volume 9, Issue 1, March 2018

Section

Articles
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Scopus
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Europe PMC

 

References

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Security Exchange Commission. A new look at the role of Sovereign Credit Default Swap.

Wen, Y., & Kinsella, J. (2013). Credit Default Swap- Pricing Theory, Real Data Analysis and Classroom Application Using Bloomberg Terminal. New York.