HW model for CDS, wrong figures??

zasf · May 24th, 2003, 1:02 pm

I'm currently reading and implementing HW model for the valuation of CDS as described in "Valuing credit default swaps I: no ctp risk", on page 28 table 3 is about implied probabilities of default:Time Def.Prob0-1 0.02201-2 0.02452-3 0.02693-4 0.02924-5 0.03155-10 0.0295I recalculated myself these probabilities and found 0.1147 instead of 0.0295 for the period "5-10", I assume that 0.0295 is wrong since def. prob. increases with time and period lenght, what do you think?Thank you

Nonius · May 26th, 2003, 5:27 am

QuoteOriginally posted by: zasfI'm currently reading and implementing HW model for the valuation of CDS as described in "Valuing credit default swaps I: no ctp risk", on page 28 table 3 is about implied probabilities of default:Time Def.Prob0-1 0.02201-2 0.02452-3 0.02693-4 0.02924-5 0.03155-10 0.0295I recalculated myself these probabilities and found 0.1147 instead of 0.0295 for the period "5-10", I assume that 0.0295 is wrong since def. prob. increases with time and period lenght, what do you think?Thank yougive me all of the inputs to the problem, and I'll solve it for you...I don't have the book.

zasf · May 26th, 2003, 5:45 am

here's the paper,zasf

Nonius · May 26th, 2003, 5:49 am

QuoteOriginally posted by: zasfhere's the paper,zasfsorry, can't download here.

zasf · May 29th, 2003, 6:33 am

QuoteOriginally posted by: Noniussorry, can't download here.Consider N bonds issued by the Reference Entity, default can happen on any of the bond maturity datesBond Life(y), Coupon (%), Bond Yield(spread over treasury par yield in bps)1, 7, 1602, 7, 1703, 7, 1804, 7, 1905, 7, 20010, 7, 220Bond coupon is paid semiannualy and bond yield is expressed with semiannual compounding. Treasury rates are assumed to be 5% per annum with semiannual compounding, recovery rate is 30%.thanks,zasf

duj · May 29th, 2003, 2:57 pm

HiFor the last calculation, do not forget that you have a recursive formula to calculate the default probabilities.For the last row (which last 5 years and not only one) you got to make an assumption like "this proba is constant from date x to date y". Instead then of dividing by a sum of Betajj + one extra number (the Beta 10,10) coming from the recursivity, you will divide by sum of Betajj + 5 number (Beta5,5...Beta10,10) and come to the right result.

giuanin · June 30th, 2003, 5:05 pm

HiI am having problems calculating the probabilities of default in the HW paper. Also, using a model proposed by Richard Flavell in "Swaps and other derivatives" I am getting a significlantly larger CDS spread. Finally while in HW teh CDS spread decreases with a higher coupon, in Flavell's it increases as the coupon increases.If anybody is willing to help please send me a private messageRegards

felicia · July 9th, 2003, 10:43 pm

can you send me your calculations for the first few default probabilities? Somehow, I can't replicate the model at all. Thanks in advance!

duj · July 10th, 2003, 10:08 am

Give me the ability to send you a private message and I send a spreadsheet right to you.

felicia · July 11th, 2003, 3:36 pm

I activated my private message function. Would u please send your spreadsheet? Thanks a lot!

guitch · May 11th, 2004, 8:23 am

I am also trying to implement the Hull-White model to value plain vanilla CDS (VBA code) and I can't find the the way to get the right probabilities. Could someone help me or send me a spreadsheet so that I could go futher in this application?Thank you in advance

guitch · May 19th, 2004, 7:25 am

I am also trying to implement the Hull-White model to value plain vanilla CDS (VBA code) and I can't find the the way to get the right probabilities. Could someone help me or send me a spreadsheet so that I could go futher in this application?Thank you in advance

guitch · May 19th, 2004, 7:25 am

I am also trying to implement the Hull-White model to value plain vanilla CDS (VBA code) and I can't find the the way to get the right probabilities. Could someone help me or send me a spreadsheet so that I could go futher in this application?Thank you in advance

strangecurrency · July 13th, 2004, 7:07 am

Hi everybody,I am trying to implement the HW paper for the valuation of CDS. I calculated the probabilities of default and they are slightly different from those illustrated in Table 2. Maybe I made a mistake when I calculated the prices of the Bonds at time 0 or when I wrote the function for calculating the integrals with Simpson's rule. Could someone send me a sample spreadsheet so I can find the error?Thanks in advance.

Herbie · July 14th, 2004, 4:14 pm

This may be incorrect, but I seem to remember from HW paper reading a long while ago, that unlike everyone else who use a step function for hazard rates, HW do not. Thus if you are using a step function, to evaluate probabilities of default at non nodal / calibration points, you may get small differences to them.