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arXiv · 2211.07564

Credit Default Swaps and the mixed-fractional CEV model

Axel A. Araneda
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Abstract

This paper explores the capabilities of the Constant Elasticity of Variance model driven by a mixed-fractional Brownian motion (mfCEV) [Axel A. Araneda. The fractional and mixed-fractional CEV model. Journal of Computational and Applied Mathematics, 363:106-123, 2020] to address default-related financial problems, particularly the pricing of Credit Default Swaps. The increase in both, the probability of default and the CDS spreads under mixed-fractional diffusion compared to the standard Brownian case, improves the lower empirical performance of the standard Constant Elasticity of Variance model (CEV), yielding a more realistic model for credit events.

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Axel A. Araneda. 2022-11-14. Credit Default Swaps and the mixed-fractional CEV model. https://arxiv.org/abs/2211.07564

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