Pricing and Liquidity of Complex and Structured Derivatives (eBook)

Mathias Schmidt works for Deloitte Consulting GmbH in Risk Management and Bank Regulation

Acknowledgement 6
Contents 7
Abbreviations 9
List of Figures 10
List of Tables 14
1 Introduction 17
References 23
2 Different Approaches on CDS Valuation—An Empirical Study 24
Abstract 24
2.1 How Does a CDS Work? 26
2.2 The Standard Approach for CDS Pricing 30
2.3 Probability of Default and Hazard Rate Structure 32
2.3.1 Constant Hazard Rate 33
2.3.2 Partial Constant Hazard Rate 34
2.3.3 Linear Hazard Rate 36
2.3.4 Partial Linear Hazard Rate 37
2.4 Multi Curve Approach 39
2.5 Data Set 43
2.6 Results 46
2.7 Conclusion 51
References 52
3 Credit Default Swaps from an Equity Option View 53
Abstract 53
3.1 Introduction to the SOD 56
3.2 CDS Premium Fee 57
3.3 Option Pricing 58
3.3.1 Black-Scholes-Merton 60
3.3.2 Monte-Carlo Simulation 62
3.3.3 Tree Models 63
3.3.4 Finite Differences 67
3.3.5 Applied Volatilities 69
3.4 Data Set 69
3.5 Results 70
3.6 Conclusion 80
References 80
4 Strike of Default: Sensitivity and Times Series Analysis 82
Abstract 82
4.1 Sensitivity 84
4.2 Time Series Analysis 86
4.3 Data Set 87
4.4 Results 88
4.5 Conclusion 102
References 103
5 Conclusion 105
Appendix 108
A.1 Influence of Industrial Sub-index on the iTraxx Europe 108
Outline placeholder 1
A.1.1 Methodology 108
A.1.2 Results 109
A.1.3 Conclusion 111
A.2 Investment/Hedging Strategy Based on the SOD 111
Outline placeholder 1
A.2.1 Methodology 112
A.2.2 Results 114
A.2.3 Conclusion 121
Literature 124