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Abstract: this article we describe what a credit spread option (CSO) is and show a tree algorithm to price it. The tree algorithm we have opted for is a two factor model composed by a Hull and White (HW) one factor for the interest rate process and a Black-Karazinsky (BK) one factor for the default intensity. Market data is used to calibrate the model to price an at the money (ATM) European CSO and then tested to price an out of the money (OTM) American CSO on a CDS. 1) (Update)
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BibTeX entry: (Update)
@misc{ garcia-pricing,
author = "Joao Garcia and Helmut Van Ginderen and Reinaldo Garcia",
title = "On the Pricing of Credit Spread Options: a Two Factor HW-BK Algorithm",
url = "citeseer.ist.psu.edu/garcia01pricing.html" }
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156 A theory of the term structure of interest rates (context) - Cox, Ingersoll et al. - 1985
31 Numerical Procedures for Implementing Term Structure Models .. (context) - Hull, White - 1994
23 On Cox processes and credit risky securities (context) - Lando - 1998
23 On Cox Processes and Credit Risky Securities (context) - Lando - 1998
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17 A Simple Approach to Valuing Risky Fixed and Floating Rate D.. (context) - Longstaff, Schwartz - 1995
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6 Structural Models of Corporate Bond Pricing: An Empirical An.. (context) - Eom, Helwege et al. - 2000
5 Term Structure Modelling of Defaultable Bonds (context) - Schonbucher - 1998
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3 Credit Risk Modelling and Credit Derivatives (context) - Schonbucher - 1999
2 A Tree Implementation of a Credit Spread Model for Credit De.. (context) - Schonbucher - 1999
2 A Tree Implementation of a Credit Spread Model for Credit De.. (context) - Schonbucher - 1999
2 Pricing a basket using Copula Functions (context) - Garcia, van Ginderen et al.
2 the Pricing of Baskets Using Copula Functions (context) - Garcia, van Ginderen et al.
2 Modelling Bonds and Derivatives with Default Risk (context) - Lando - 1997
1 Applications of Mathematics Stochastic Modelling and Applied.. (context) - Musiela, Rutkovisky - 1997
1 Using Historical Data to Calibrate a Two Factor HWBK Model f.. (context) - Garcia, van Ginderen et al.
1 Libor Market Model With Defaul Risk (context) - Schonbucher - 2000
1 the Pricing of Corporate Debit: The risk structure of intere.. (context) - Merton - 1974
1 Present Valuing Credit Default Swaps: a Practitioner View (context) - Garcia, Van Ginderen et al. - 2001
1 Numerical Procedures for Implementating Term Structure Model.. (context) - Hull, White - 1994
1 Point Processes and Queues Martingale Dynamics (context) - Breemaud - 1981
1 the Pricing of CSO's using a Black and Scholes Aproximation (context) - Garcia, van Ginderen et al. - 2001
1 Price and Probability (context) - Martin, Thompson et al. - 2001
1 Global Structured Finance Research (context) - Flanagan, Sam - 2001
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