How well do classical credit risk pricing models fit swap transaction data? |
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Authors: | Didier Cossin & Hugues Pirotte |
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Institution: | HEC, University of Lausanne, BFSH1, 1015 Dorigny, Switzerland, e-mail: Didier.Cossin@hec.unil.ch and Hugues.Pirotte@hec.unil.ch |
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Abstract: | Currency and interest rate swaps are subject to a complex, two-sided default risk. Several theoretical papers have recently addressed the problem of pricing this swap credit risk. We implement a recent credit risk pricing model in an attempt to evaluate one of the main lines of research in theoretical credit risk analysis. We compare the model's analytical results to actual transaction data thanks to a unique academic database on swap transaction data. |
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Keywords: | derivatives swaps credit risk transaction data model calibration |
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