Pricing Credit Hybrid Options With CIR Credit Intensity

BlackyRL78 · December 8th, 2008, 8:36 pm

Hi,I am looking for good approximations when pricing credit hybrid options with CIR credit intensity. The asset is supposed to have a log-normal dynamic + jump at default (Cox process). The Jump process is driven by a CIR process.Any idea ?Cheers

seppar · December 10th, 2008, 1:28 am

What exactly are you trying to price? The survival probability and the default time density are known for CIR jump-to-default model so I don't see a need for approximations to price CDS, CDS options, and equity options in this model.

BlackyRL78 · December 11th, 2008, 9:33 pm

I am trying to price an equity option in this framework without using PDE or MC but using some proxies (if they exist

?)

seppar · December 12th, 2008, 3:30 am

I suggest you check out hese papers:http://www.math.nyu.edu/research/carrp/ ... dfAlthough in these paper the jump-to-default intensity is assumed to be a linear function of the instanteneous variance driven by CIR process, you can easily work-out the case with constant volatility and the jump-to-default with stochastic intensity.

loooooo · October 31st, 2009, 7:08 pm

Well, a belated reply to the time it was written, and I am sure that you must have got this issue sorted out somehow, but just to let others who may have much the same problem as to their projects know of some good references:http://www.mit.edu/~junpan/dps.pdf Credit Derivatives Pricing Models: Model, Pricing and Implementation - you could easily get an ebook available on the web