Pricing CDS Index Tranche under Contagion Model with Regime Switching

Jiayuan Qian; Guojin Wang; Hailiang Yang

Pricing CDS Index Tranche under Contagion Model with Regime Switching

Jiayuan Qian, Guojin Wang^*, Hailiang Yang

^*Corresponding author for this work

Department of Financial and Actuarial Mathematics

Soochow University

Research output: Contribution to journal › Article › peer-review

Abstract

We consider the pricing of the CDS (Credit Default Swap) index tranche under a new reduced-form credit risk model with contagion and regime switching. We present the closed-form expressions for the distributions of kth default times and the cumulative number of defaulted firms. We obtain the closed-form pricing formulas for the CDS index tranche based on its quotation convention. Furthermore, we select CDX.NA.IG.S33 5Y as an empirical example. The empirical results based on market data show that the proposed pricing model offers a valuable reference in predicting the market quotes of CDX.NA.IG.S33 5Y.

Original language	English
Number of pages	35
Journal	Applied and Computational Mathematics
Publication status	Accepted/In press - 22 Feb 2025

Keywords

Credit Risk, Contagion, Regime Switching, Cox Process, CDS Index Tranche

Cite this

@article{34214a6b06e84929b657418e024226ce,

title = "Pricing CDS Index Tranche under Contagion Model with Regime Switching",

abstract = "We consider the pricing of the CDS (Credit Default Swap) index tranche under a new reduced-form credit risk model with contagion and regime switching. We present the closed-form expressions for the distributions of kth default times and the cumulative number of defaulted firms. We obtain the closed-form pricing formulas for the CDS index tranche based on its quotation convention. Furthermore, we select CDX.NA.IG.S33 5Y as an empirical example. The empirical results based on market data show that the proposed pricing model offers a valuable reference in predicting the market quotes of CDX.NA.IG.S33 5Y.",

keywords = "Credit Risk, Contagion, Regime Switching, Cox Process, CDS Index Tranche",

author = "Jiayuan Qian and Guojin Wang and Hailiang Yang",

year = "2025",

month = feb,

day = "22",

language = "English",

journal = "Applied and Computational Mathematics ",

issn = "2328-5605",

}

TY - JOUR

T1 - Pricing CDS Index Tranche under Contagion Model with Regime Switching

AU - Qian, Jiayuan

AU - Wang, Guojin

AU - Yang, Hailiang

PY - 2025/2/22

Y1 - 2025/2/22

N2 - We consider the pricing of the CDS (Credit Default Swap) index tranche under a new reduced-form credit risk model with contagion and regime switching. We present the closed-form expressions for the distributions of kth default times and the cumulative number of defaulted firms. We obtain the closed-form pricing formulas for the CDS index tranche based on its quotation convention. Furthermore, we select CDX.NA.IG.S33 5Y as an empirical example. The empirical results based on market data show that the proposed pricing model offers a valuable reference in predicting the market quotes of CDX.NA.IG.S33 5Y.

AB - We consider the pricing of the CDS (Credit Default Swap) index tranche under a new reduced-form credit risk model with contagion and regime switching. We present the closed-form expressions for the distributions of kth default times and the cumulative number of defaulted firms. We obtain the closed-form pricing formulas for the CDS index tranche based on its quotation convention. Furthermore, we select CDX.NA.IG.S33 5Y as an empirical example. The empirical results based on market data show that the proposed pricing model offers a valuable reference in predicting the market quotes of CDX.NA.IG.S33 5Y.

KW - Credit Risk, Contagion, Regime Switching, Cox Process, CDS Index Tranche

M3 - Article

SN - 2328-5605

JO - Applied and Computational Mathematics

JF - Applied and Computational Mathematics

ER -

Pricing CDS Index Tranche under Contagion Model with Regime Switching

Abstract

Keywords

Fingerprint

Cite this