Author(s)

Jin Liang, Yujing Zhou

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This paper provides a methodology for valuing a Loan Credit Default Swap Index (LCDX) and its tranches involving both default and prepayment risks. The valuation is path dependence, where interest, default and prepayment rates are correlated stochastic processes following CIR processes. By Monte Carlo simulation, a numerical solution and team structure of tranched LCDX are obtained. Computing examples are provided.

LCDX, Default, Prepayment, Monte Carlo Method

Liang, J. and Zhou, Y. (2011) Valuation of a Tranched Loan Credit Default Swap Index. Technology and Investment, 2, 240-246. doi: 10.4236/ti.2011.24025.