Credit Derivatives－Valuation and Analysis of Basket Defult Swaps

• Main Authors: HAO-SHENG HSU, 許豪陞
• Other Authors: Da-Bai Shen
• Format: Others
• Language: zh-TW
• Published: 2006
• Online Access: http://ndltd.ncl.edu.tw/handle/27285037510363269066

碩士 === 東吳大學 === 經濟學系 === 94 === Credit derivatives are used to separate and transfer credit risks. They are mainly indicated to specific financial derivatives that take the credit condition of loans or bonds as reference assets. Because of a series of financial crisis and firm scandals resulting in firm bankruptcy and credit crisis, credit derivatives have been the fastest growing derivatives products in the past few years. In Taiwan, not only Credit derivatives belong to the latest derivatives products, but also the infrastructure (i.e. contract design, environment of transaction, pricing model) of credit derivatives are not established well. It is expected that credit derivatives will grow rapidly in volume and complexity of the products offered in the future in Taiwan. While the biggest part of outstanding notionals is still found in simple products like credit default swaps, complex products having payoff profiles depending on a whole credit portfolio are becoming more popular. Examples of such products are basket default swaps (BDS). A basket default swap extends the credit protection, which a simple credit default swap grants for a single underlying, to a portfolio of underlyings with the restriction that the default of only one underlying is compensated. The price of such products depends on the joint default probability of the underlying in the credit portfolio. Thus, the modeling of dependence between defaults is a key issue for the valuation and risk management of basket default swaps. The subject of this thesis is valuation and analysis of multi-name credit swaps such as basket default swaps. The key idea of modeling correlated default is the usage of copula. In this thesis the valuation model of basket default swaps is set up with Gaussian Copula, Student’s Copula and Clayton Copula. We empirically examine basket default swaps within the copula framework by using Monte Carlo Simulation approach.