TITLE:
Pricing Loan CDS with Vasicek Interest Rate under the Contagious Model
AUTHORS:
Yinglin Liu, Ruili Hao, Zuhua Wang
KEYWORDS:
Loan CDS, Contagious Risk, Vasicek Interest Rate, Primary-Secondary Framework
JOURNAL NAME:
Journal of Mathematical Finance,
Vol.6 No.3,
August
26,
2016
ABSTRACT: This paper mainly studies the pricing of credit default swap with the loan as the reference asset under the primary-secondary model. In the contract of credit default swap (CDS), we consider that the defaults of the counterparties are correlated with the stochastic interest rate following Vasicek model or the default state of the reference firm. We assume that the company’s default is independent with the company’s prepayment and obtain the pricing formulas of the loan and loan CDS.