2009-01-23

Credit Delivatives Pricing Models

If you have to calculate the pricing of credit derivatives, you have to read this book.
The simplest CDS pricing formula is
d(1-r) = s(1-d)
s: annual CDS premier, d: annual default rate and r: recovery rate
It seems very easy. However, this formula doesn't include counter party default risk or liquidity risks. The practical formula must be more complicated.

No comments: