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arXiv · 0812.4199

An exact formula for default swaptions' pricing in the SSRJD stochastic intensity model

Damiano Brigo·Naoufel El-Bachir
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Abstract

We develop and test a fast and accurate semi-analytical formula for single-name default swaptions in the context of a shifted square root jump diffusion (SSRJD) default intensity model. The model can be calibrated to the CDS term structure and a few default swaptions, to price and hedge other credit derivatives consistently. We show with numerical experiments that the model implies plausible volatility smiles.

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Damiano Brigo, Naoufel El-Bachir. 2008-12-22. An exact formula for default swaptions' pricing in the SSRJD stochastic intensity model. https://arxiv.org/abs/0812.4199

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