Pricing for Basket CDS and LCDS


In this paper, under the reduced form framework and “Bottom Up” method, a model for pricing a basket Loan-only Credit Default Swap (LCDS), with the negative correlation between prepayment and default, is established. A general pricing formula for it is obtained, where one factor CIR (Cox-Ingersoll-Ross) and ICIR (Inversed CIR) models are used to describe the negative correlation between prepayment and default. In this situation, the positivity of prepayment and default intensity processes are guaranteed. Numerical computations are presented.

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T. Wang, J. Liang and X. Yang, "Pricing for Basket CDS and LCDS," Modern Economy, Vol. 3 No. 2, 2012, pp. 171-178. doi: 10.4236/me.2012.32024.

Conflicts of Interest

The authors declare no conflicts of interest.


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