Credit Derivative Valuation and Parameter Estimation for Multi-Factor Affine CIR-Type Hazard Rate Model

DOI: 10.4236/jmf.2015.53024   PDF   HTML   XML   3,525 Downloads   4,227 Views   Citations


The purpose of this paper is to derive or determine the Credit Derivative, especially, the Credit Default Swap which is under the hazard rate (or default intensity) distributed as a multi-factor of the Cox, Ingersoll and Ross (CIR, 1985) models. It is crucial to know how default should be modelled for the valuation of credit derivatives. We are motivated by the idea that CIR term structure model, for example, must be effective for modelling hazard rate, and has some significant properties: mean-reversion and affine. We use South Africa (SA) credit spread market data on Defaultable bonds to estimate parameters associated with the stochastic single-factor hazard rate type CIR.

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Maboulou, A. and Mashele, H. (2015) Credit Derivative Valuation and Parameter Estimation for Multi-Factor Affine CIR-Type Hazard Rate Model. Journal of Mathematical Finance, 5, 273-285. doi: 10.4236/jmf.2015.53024.

Conflicts of Interest

The authors declare no conflicts of interest.


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