TY - JOUR
T1 - Pricing Derivatives using the Asymptotic Expansion Approach
T2 - Credit Migration Models with Stochastic Credit Spreads
AU - Muroi, Yoshifumi
AU - Takino, E. Kazuhiro
PY - 2011/11
Y1 - 2011/11
N2 - The purpose of this paper is to evaluate the asymptotic approximation formulas for the price of contingent claims with credit risk, such as credit default swaps and options on defaultable bonds, in a Markovian credit migration model. Often the generator matrix of a credit migration process is assumed to be deterministic; however, a stochastically varying generator matrix is used in this paper. To apply such a model to the valuation of options on defaultable bonds, the small disturbance asymptotic expansion approach of Kunitomo and Takahashi is used in this study.
AB - The purpose of this paper is to evaluate the asymptotic approximation formulas for the price of contingent claims with credit risk, such as credit default swaps and options on defaultable bonds, in a Markovian credit migration model. Often the generator matrix of a credit migration process is assumed to be deterministic; however, a stochastically varying generator matrix is used in this paper. To apply such a model to the valuation of options on defaultable bonds, the small disturbance asymptotic expansion approach of Kunitomo and Takahashi is used in this study.
KW - Credit default swaps
KW - Credit migration model
KW - Credit risk
KW - Defaultable bonds
KW - Options on defaultable bonds
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U2 - 10.1007/s10690-010-9134-0
DO - 10.1007/s10690-010-9134-0
M3 - Article
AN - SCOPUS:80053627795
VL - 18
SP - 345
EP - 372
JO - Asia-Pacific Financial Markets
JF - Asia-Pacific Financial Markets
SN - 1387-2834
IS - 4
ER -