PDE approach for pricing credit derivatives

frenchX · June 26th, 2011, 4:29 pm

Could someone please point me out some references or work about pricing credit derivatives such as CDS or CDO in a PDE approach (so not the copula or martingale one) ? I have spent some hours about searching articles about that but I didn't manage to put a hand on it.There should be some basic model such as Merton or simple Vasicek for the probability of default which should lead to a PDE.Thanks,Ben

Yossarian22 · June 26th, 2011, 4:53 pm

Try Schonbucher book and website here

frenchX · June 26th, 2011, 4:59 pm

Thank you very much !

bearish · June 26th, 2011, 9:19 pm

If you are willing to settle for ODEs, you can find some here: http://math.nyu.edu/financial_mathemati ... 2008-1.pdf

frenchX · June 27th, 2011, 5:53 am

Thank you bearish.I'm looking to the PDE approach to apply the uncertainty method here.

frenchX · June 28th, 2011, 1:57 pm

I have quicky read the article of Carr but I think that the goal is different.Is it possible to consider the classical method of building a portfolio P=V-delta*B with V the CDS, B a risk free bond and then it could be possible to decompose the CDS payoff into a strip of risk bonds like a classical swap decomposition right ?