A simple nonparametric approach to pricing credit default swaps
This study introduces a nonparametric approach to pricing credit default swaps (CDSs) and other single-name credit-risky securities. This method is notable for its simplicity, estimation speed, and flexibility. That is, it relies exclusively on closed-form solutions, which provide instantaneous resu...
| Author: | |
|---|---|
| Format: | Article |
| Publication date: | 2025 |
| Country: | España |
| Institution: | Universitat Ramon Llull (URL) |
| Repository: | DAU Arxiu Digital de la Universitat Ramon Llull |
| OAI Identifier: | oai:dau.url.edu:20.500.14342/6011 |
| Online Access: | https://hdl.handle.net/20.500.14342/6011 https://doi.org/10.1016/j.jedc.2025.105198 |
| Access Level: | Open access |
| Keyword: | Credit risk pricing No-arbitrage conditions Bootstrapping CDS contracts |
| _version_ | 1878742001700044800 |
|---|---|
| author | Forte, Santiago |
| author_browse | Forte, Santiago |
| author_facet | Forte, Santiago |
| author_role | author |
| collection | DAU Arxiu Digital de la Universitat Ramon Llull |
| description | This study introduces a nonparametric approach to pricing credit default swaps (CDSs) and other single-name credit-risky securities. This method is notable for its simplicity, estimation speed, and flexibility. That is, it relies exclusively on closed-form solutions, which provide instantaneous results, and allows the user to reproduce any term structure of CDS spreads. I empirically assess its pricing performance by comparing it with an otherwise equivalent semiparametric (piecewise constant default probability) model that requires a series of root-search algorithms and represents the current market convention for marking-to-market CDS contracts. This analysis demonstrates that the new method also implies a reduction in mean percentage absolute pricing errors. |
| eu_rights_str_mv | openAccess |
| format | article |
| id | ES_ee95faa5ce7790cb8f00a6f1f1732d6d |
| institution | Universitat Ramon Llull (URL) |
| instname_str | Universitat Ramon Llull (URL) |
| network_acronym_str | ES |
| network_name_str | España |
| oai_identifier_str | oai:dau.url.edu:20.500.14342/6011 |
| publishDate | 2025 |
| publishDateSort | 2025 |
| publisher | Elsevier B.V. |
| publisherStr | Elsevier B.V. |
| reponame_str | DAU Arxiu Digital de la Universitat Ramon Llull |
| spelling | A simple nonparametric approach to pricing credit default swaps Forte, Santiago Credit risk pricing No-arbitrage conditions Bootstrapping CDS contracts This study introduces a nonparametric approach to pricing credit default swaps (CDSs) and other single-name credit-risky securities. This method is notable for its simplicity, estimation speed, and flexibility. That is, it relies exclusively on closed-form solutions, which provide instantaneous results, and allows the user to reproduce any term structure of CDS spreads. I empirically assess its pricing performance by comparing it with an otherwise equivalent semiparametric (piecewise constant default probability) model that requires a series of root-search algorithms and represents the current market convention for marking-to-market CDS contracts. This analysis demonstrates that the new method also implies a reduction in mean percentage absolute pricing errors. info:eu-repo/semantics/publishedVersion Elsevier B.V. https://hdl.handle.net/20.500.14342/6011 https://doi.org/10.1016/j.jedc.2025.105198 |
| spellingShingle | A simple nonparametric approach to pricing credit default swaps Forte, Santiago Credit risk pricing No-arbitrage conditions Bootstrapping CDS contracts |
| title | A simple nonparametric approach to pricing credit default swaps |
| title_full | A simple nonparametric approach to pricing credit default swaps |
| title_fullStr | A simple nonparametric approach to pricing credit default swaps |
| title_full_unstemmed | A simple nonparametric approach to pricing credit default swaps |
| title_short | A simple nonparametric approach to pricing credit default swaps |
| title_sort | A simple nonparametric approach to pricing credit default swaps |
| topic | Credit risk pricing No-arbitrage conditions Bootstrapping CDS contracts |
| topic_facet | Credit risk pricing No-arbitrage conditions Bootstrapping CDS contracts |
| url | https://hdl.handle.net/20.500.14342/6011 https://doi.org/10.1016/j.jedc.2025.105198 |