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Pricing Credit Default Swap under Fractional Vasicek Interest Rate Model

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DOI: 10.4236/jmf.2014.41002    3,724 Downloads   6,054 Views   Citations

ABSTRACT

This paper discusses the pricing problem of credit default swap in the fractional Brownian motion environment. As credit default swap is exposed to both the interest rate risk and the default risk, we assume that the default intensity of a firm depends on the stochastic interest rate and the default states of counterparty firms. The interest rate risk is reflected by the fractional Vasicek interest rate model. We model the firms default intensity under the looping default model and derive the pricing formulas of risky bonds and credit default swap.

Conflicts of Interest

The authors declare no conflicts of interest.

Cite this paper

R. Hao, Y. Liu and S. Wang, "Pricing Credit Default Swap under Fractional Vasicek Interest Rate Model," Journal of Mathematical Finance, Vol. 4 No. 1, 2014, pp. 10-20. doi: 10.4236/jmf.2014.41002.

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