Pricing credit swaptions under affine term structure models
by Yuen Chi Hung
ix, 34 p. : ill. ; 30 cm
This paper develops a semi-closed form formula for pricing credit default swaptions under the context of affine models by the sub-filtration approach. We assume stochastic interest rate and stochastic default intensity, not necessarily independent, driven by multi-factor affine state variables. We approximate the dynamics of the state variables under the default swap measure by their martingale values at time zero, so that they remain in affine structure. Then we compute the price of a payer swaption by inverse Fourier transform. A two-factor CIR++ example is tested with numerical results.
Permanent URL for this record: https://lbezone.hkust.edu.hk/bib/b1070045
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