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...
| Autor: | |
|---|---|
| Formato: | artículo |
| Fecha de publicación: | 2025 |
| País: | España |
| Recursos: | Universitat Ramon Llull (URL) |
| Repositorio: | DAU Arxiu Digital de la Universitat Ramon Llull |
| OAI Identifier: | oai:dau.url.edu:20.500.14342/6011 |
| Acesso em linha: | https://hdl.handle.net/20.500.14342/6011 https://doi.org/10.1016/j.jedc.2025.105198 |
| Access Level: | acceso abierto |
| Palavra-chave: | Credit risk pricing No-arbitrage conditions Bootstrapping CDS contracts |
| Resumo: | 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. |
|---|