Modern Economy

Volume 3, Issue 2 (March 2012)

ISSN Print: 2152-7245   ISSN Online: 2152-7261

Google-based Impact Factor: 0.74  Citations  h5-index & Ranking

Pricing for Basket CDS and LCDS

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DOI: 10.4236/me.2012.32024    5,402 Downloads   8,824 Views  Citations

ABSTRACT

In this paper, under the reduced form framework and “Bottom Up” method, a model for pricing a basket Loan-only Credit Default Swap (LCDS), with the negative correlation between prepayment and default, is established. A general pricing formula for it is obtained, where one factor CIR (Cox-Ingersoll-Ross) and ICIR (Inversed CIR) models are used to describe the negative correlation between prepayment and default. In this situation, the positivity of prepayment and default intensity processes are guaranteed. Numerical computations are presented.

Share and Cite:

T. Wang, J. Liang and X. Yang, "Pricing for Basket CDS and LCDS," Modern Economy, Vol. 3 No. 2, 2012, pp. 171-178. doi: 10.4236/me.2012.32024.

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