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Credit Derivative Valuation and Parameter Estimation for Multi-Factor Affine CIR-Type Hazard Rate Model
Centre for Business Mathematics and Informatics, North West University, Pochefstroom, South Africa
African Institute for Mathematical Sciences, Muizenberg, Cape Town, Republic of South Africa
- 1 Centre for Business Mathematics and Informatics, North West University, Pochefstroom, South Africa
- 2 African Institute for Mathematical Sciences, Muizenberg, Cape Town, Republic of South Africa
Journal of Mathematical Finance·Volume 05 (2015)·Pages 273–285·Published 7 July 2015·DOI10.4236/jmf.2015.53024
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Abstract
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.
KeywordsCredit DerivativeCredit Default SwapHazard RateCredit SpreadDefault Able BondCIR Model
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