<t>not sure why this is in this forum but...MtM on CDS = (s_t - s_0)*RPV01_twhere subcript t quantities are today and subscript zero is at trade initiation. RPV01_t is the present value of a risky annuity from today to maturity of the CDS (like a duration). This is correct because if you bought prot...

Anybody have Code for Schonbucher-type two factor trinomial tree to price bermudan CDSO (for example)?

<t>thanks again. I guess my question is whether I can price the option on the index without pricing each of the underlying names individually. Suppose I don't even know the underlying names and I just want to use the market spread curve for the index and use my black box to price the option and get ...

<t>Thanks HTFB. Makes sense. Can you address the issue of pricing CDS Options on indices -- ie., index spread implies some prob of default which is used to discount in Hull-White model; but the index should be will be around (almost) almost surely in 6mo?I guess the mechanics for a regular no-knock ...

<t>This seems like a strange question to me. The B-S formula gives an explicit solution for the 6 month option, after all. So what could the 3 month option tell us to better price the 6 month? Well, volatility.What is your motivation for this approach? Ultimately, what you want is the forward price ...

<t>Thanks for your reply. According to some of the market makers our traders deal with, some banks are now quoting "no-knockout" options on CDS. Of course, it seems natural for it to knockout, and that feature is built into the pricing method. Hence, my questions.Even if it is irrelevant for single ...

<t>Maybe the better approach is to proceed as in Hull-White, conditioning on no default to T, but now the piece in states of the world with a default are not zero. Break up default into 1(default) = 1(bankruptcy)+1(restructuring)+1(failure to pay) and then price the option given no knock out in each...

<t>if you know the dynamics of the forward rate under the usual martingale measure, then you should be able to compute the explicit dynamics under the new measure a la girsonov. The R-N derivative for the new numeraire should be dP*/dP = N(T)/(N(0)*Beta(T)) where N(t) is the new numeraire. State pri...

base correlation is one method

what's CMS

<t>I am pricing options on CDS whereT = expiration date of option, start of CDSV = option valueV* = option value conditional on no default by TP(T) = Prob(no default by T)I am using the Hull-White extension of Jamshidians interest rate swaption extension of Black's model.We haveV = P(T).V* is the bl...