CDS & FTD cancellable

Squal · April 23rd, 2004, 6:34 am

Hi,I'm thinking about how to price CDS & FTD cancellable ?Could be a black & schole model, a good idea to price the embedded option ? Is that a big approximation ?Has some some reference on this kind of work

Stefanone · April 23rd, 2004, 7:46 am

use vanilla CDS + CDS Swaption and you are done. CDS swaption can be priced in a B&S framework. See Schonbucher and/or Hull&White.With FTD, much more complicated..

madmax · April 25th, 2004, 11:05 am

Is there any cancellable CDS or FTD of American or Bermudan type traded, or any other type except European style ?

scarecrow · April 26th, 2004, 6:29 pm

I am trying to price a CDS options using the Hull & White model. When I try to replicate the results of the authors, the default probabilities q1-q5 that I get are not matching with the ones in the paper (Table 2, stepwise default prob function in the paper titled "The valuation of CDS options" by Hull and White). Has anyone tried pricing CDS options using Hull and White?Please help!

complexity · May 13th, 2004, 11:15 pm

Stefanone,if you find an implied vol you can get away with pricing a CDS Swaption using Black. However, keep in mind that your smile curve will be extremely steep. Thus, any OTM contract will be tricky to deal with and your risk number won't make much sense either./C

JabairuStork · May 13th, 2004, 11:54 pm

just make damn sure you are not short the put if you price w/ B-S