By reinterpreting the calibration of structural models, a reassessment of the importance of the input variables is undertaken. The analysis shows that volatility is the key parameter to any calibration exercise, by several orders of magnitude. To maximize the sensitivity to volatility, a simple...

We study the valuation of contingent credit default swaps (C-CDS) where the underlying is an interest rate swap and swap rate follows a diffusion process with a one-time jump at default. Our method extends the standard Black (1976) model for interest rate swaption to (1) swaption expires at a...

In this paper we present two (semi)-analytic synthetic CDO tranche pricing formulas using a subordinator Levy Marshall-Olkin credit correlation model. These formulas can be easily evaluated in terms of machine computational time, therefore they are particularly suitable for the correlation model...

Recently, advantages of conformal deformations of the contours of integration in pricing formulas for European options have been demonstrated in the context of wide classes of L'evy models, the Heston model and other affine models. Similar deformations were used in one-factor L'evy models to...

We derive an efficient closed-form approximation for the moment generating function of the integral of a mean-reverting stochastic process, following a linear SDE, which we call GARCH. We then consider a financial application, namely the pricing of a quanto CDS under stochastic intensity of...

We propose a method to extract the risk-neutral distribution of firm-specific stock returns using both options and credit default swaps (CDS). Options and CDS provide information about the central part and the left tail of the distribution, respectively. Together but not in isolation, options...

The aim of this paper is to extract credit-risk sensitive information from the quotes of equity options and CDSs. In particular, we wish to estimate the firm's leverage, as it is perceived by traders. This goal is achieved within a model à la Leland (1994), where stockholders have a perpetual...