Pricing Of The Credit Derivaives

In recent years, credit derivatives,as tools of transfering credit risk, have been developed rapidly,and applied widly and flexibly in Europe and American develop-ed areas. However, in this global financial crisis, triggered by the U.S. subprime mortgage crisis, the wider use of credit derivatives has not managed and controled the credit risk but to faciliate the credit risk, which partly because of poor government regulation, but in large part caused by the default risk of counterparty, and default correlation between reference creditors and counterparty seriously underestimated. The main reason of underestimation of the default correlation is that we had not fully measured tail dependence between variables.The Archimedean Copula function is good at capturing tail correlation between random variables.This paper,with the background of the global financial crisis,applies the Arch-imedean Copula function to solve the problems,which are exposured in credit deri-vatives dealing in Europe,America,and other regions with advanced financial system. The multi-dimensional Archimedean Copula function is used to measure the counterparty default risk,and the dependence between counterparty and reference creditors,which is crucial to the pricing of credit derivatives,for the purpose of fully measuring the tail dependence between assets and determining a fair and reasonable price for credit derivatives.The common trading structure of credit derivatives includes the credit default swaps, credit linked notes, credit spread options,total return swaps and credit default index products and so on.Credit derivatives are commonly priced by the structure model and the intensity models.The paper prices the credit derivatives through non-parameters kernel density estimation and multi-dimensional Archimedean Copula function based on the intensity model.Two empirical researches about baskets of credit default swaps pricing have been done on any four listed companies in our country.The innovation parts and conclusions of this paper are reflected in the following aspects:1. The paper prices the basket credit default swaps among financial crisis.The tool takes the default risk of the counterparty into account,as well as the default correlation between the counterparty and reference creditors.The basket credit default swaps have been priced by the Copula functions and most of them mainly are based on the elliptical Copula function,which measured the default dependence among the reference assets.Domestic researches that use multi-dimensional Archimedean Copula function to measure correlations are rare. It is almost a blank in rencent studies to use multi-dimensional Archimedean Copula functions measure the default correlation among the counterparty and the reference creditors when pricing of basket credit default swaps.2. The contract of the basket credit default swaps has been designed in which counterparty default is prior to the m times default among the reference assets. Different from the existing domestic researches,the contract paied particular attention to the compensation for the buyer of credit protection,when the counterparty default is prior to the m times default among the reference assets. Based on this,an expression has been concluded in the risk neutral measure under the condition of the absence of arbitrage.3. A contract of portfolio credit linked notes built-in basket credit default swaps was designed and priced. In the research of pricing of the credit linked notes, this paper takes special account to the default risk of the notes issuer and the recovery rate after default, and discussed the default correlation among the reference creditors and the note issurer.4. When the economy is in recession,under the influence of counterparty on default correlation of reference creditors:(1)The default correlation between referent assets themselves significantly increased;(2)The probability of the second or the third times default of the referent assets, particularly the third time evidently increased,which indicates that the tail dependence of reference assets default significantly increased under the influnce.