Total Return Swap Valuation with Counterparty Risk and Interest Rate Risk
We study the pricing of total return swap (TRS) under the contagion models with counterparty risk and the interest rate risk. We assume that interest rate follows Heath-Jarrow-Morton (HJM) forward interest rate model and obtain the Libor market interest rate. The cases where default is related to th...
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| Format: | Article |
| Language: | English |
| Published: |
Wiley
2014-01-01
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| Series: | Abstract and Applied Analysis |
| Online Access: | http://dx.doi.org/10.1155/2014/412890 |
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| _version_ | 1850167074818621440 |
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| author | Anjiao Wang Zhongxing Ye |
| author_facet | Anjiao Wang Zhongxing Ye |
| author_sort | Anjiao Wang |
| collection | DOAJ |
| description | We study the pricing of total return swap (TRS) under the contagion models with counterparty risk and the interest rate risk. We assume that interest rate follows Heath-Jarrow-Morton (HJM) forward interest rate model and obtain the Libor market interest rate. The cases where default is related to the interest rate and independent of interest rate are considered. Using the methods of change of measure and the “total hazard construction,” the joint default probabilities are obtained. Furthermore, we obtain the closed-form formulas of TRS under different contagion models, respectively. |
| format | Article |
| id | doaj-art-dba7d1d0c3dd4fd7a028e8322a35c07a |
| institution | OA Journals |
| issn | 1085-3375 1687-0409 |
| language | English |
| publishDate | 2014-01-01 |
| publisher | Wiley |
| record_format | Article |
| series | Abstract and Applied Analysis |
| spelling | doaj-art-dba7d1d0c3dd4fd7a028e8322a35c07a2025-08-20T02:21:17ZengWileyAbstract and Applied Analysis1085-33751687-04092014-01-01201410.1155/2014/412890412890Total Return Swap Valuation with Counterparty Risk and Interest Rate RiskAnjiao Wang0Zhongxing Ye1School of Business Information, Shanghai University of International Business and Economics, Shanghai 201620, ChinaSchool of Business Information, Shanghai University of International Business and Economics, Shanghai 201620, ChinaWe study the pricing of total return swap (TRS) under the contagion models with counterparty risk and the interest rate risk. We assume that interest rate follows Heath-Jarrow-Morton (HJM) forward interest rate model and obtain the Libor market interest rate. The cases where default is related to the interest rate and independent of interest rate are considered. Using the methods of change of measure and the “total hazard construction,” the joint default probabilities are obtained. Furthermore, we obtain the closed-form formulas of TRS under different contagion models, respectively.http://dx.doi.org/10.1155/2014/412890 |
| spellingShingle | Anjiao Wang Zhongxing Ye Total Return Swap Valuation with Counterparty Risk and Interest Rate Risk Abstract and Applied Analysis |
| title | Total Return Swap Valuation with Counterparty Risk and Interest Rate Risk |
| title_full | Total Return Swap Valuation with Counterparty Risk and Interest Rate Risk |
| title_fullStr | Total Return Swap Valuation with Counterparty Risk and Interest Rate Risk |
| title_full_unstemmed | Total Return Swap Valuation with Counterparty Risk and Interest Rate Risk |
| title_short | Total Return Swap Valuation with Counterparty Risk and Interest Rate Risk |
| title_sort | total return swap valuation with counterparty risk and interest rate risk |
| url | http://dx.doi.org/10.1155/2014/412890 |
| work_keys_str_mv | AT anjiaowang totalreturnswapvaluationwithcounterpartyriskandinterestraterisk AT zhongxingye totalreturnswapvaluationwithcounterpartyriskandinterestraterisk |