A simple nonparametric approach to pricing credit default swaps
This study introduces a nonparametric approach to pricing credit default swaps (CDSs) and other single-name credit-risky securities. This method is notable for its simplicity, estimation speed, and flexibility. That is, it relies exclusively on closed-form solutions, which provide instantaneous resu...
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| Tipo de recurso: | artículo |
| Fecha de publicación: | 2025 |
| País: | España |
| Institución: | Varias* (Consorci de Biblioteques Universitáries de Catalunya, Centre de Serveis Científics i Acadèmics de Catalunya) |
| Repositorio: | Recercat. Dipósit de la Recerca de Catalunya |
| OAI Identifier: | oai:recercat.cat:20.500.14342/6011 |
| Acceso en línea: | https://hdl.handle.net/20.500.14342/6011 https://doi.org/10.1016/j.jedc.2025.105198 |
| Access Level: | acceso abierto |
| Palabra clave: | Credit risk pricing No-arbitrage conditions Bootstrapping CDS contracts |
| Sumario: | This study introduces a nonparametric approach to pricing credit default swaps (CDSs) and other single-name credit-risky securities. This method is notable for its simplicity, estimation speed, and flexibility. That is, it relies exclusively on closed-form solutions, which provide instantaneous results, and allows the user to reproduce any term structure of CDS spreads. I empirically assess its pricing performance by comparing it with an otherwise equivalent semiparametric (piecewise constant default probability) model that requires a series of root-search algorithms and represents the current market convention for marking-to-market CDS contracts. This analysis demonstrates that the new method also implies a reduction in mean percentage absolute pricing errors. |
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