Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/129942 
Year of Publication: 
2014
Series/Report no.: 
Working Papers No. 2014-27
Publisher: 
Banco de México, Ciudad de México
Abstract: 
A credit default swap (CDS) is a financial contract in which the holder of the instrument will be compensated in the event of a loan default. When available, CDS's are used to monitor the credit risk of countries and companies. In this work we develop a closed form procedure to value a CDS in the case in which the so-called "credit rate index" is modelled as a Bessel bridge of arbitrary order. In particular, these processes seem to capture the nature of a defaultable asset in the sense that they remain strictly positive before default, and thus enrich the existing literature in this field.
Subjects: 
credit default swap
Bessel bridge
hitting time
defaultable bond
JEL: 
G0
G1
Document Type: 
Working Paper
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