A Direct Approach to Arbitrage-Free Pricing of Credit Derivatives
Sanjiv R. Das, Rangarajan K. Sundaram
NBER Working Paper No. 6635
This paper develops a model for the pricing of credit derivatives using observables. The model (i) is arbitrage-free, (ii) accommodates path-dependence, and (iii) handles a range of securities, even with American features. The computer implementation uses a recursive scheme that is convenient and seamlessly processes forward induction and backward recursion, needed to compute more complicated derivative securities.
Document Object Identifier (DOI): 10.3386/w6635
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