The Pricing Of Credit Default Swaps

Credit derivatives, new credit-protection practice arising in 1990s, are financialinstruments designed for managing or shifting credit risks. They can separate andtransfer credit risk of the assets in order to reduce the holder's risk exposure. After1990s, the credit derivatives market has became an important component part offinancial derivatives market and risk transfer market.The topic of this paper is to research the problem of pricing of credit defaultswap. The wholes thesis consists of three chapters:In the chapter one, we introduced the development of credit derivatives marketand the pricing method of credit default swap.In the chapter two, we discuss the problem of pricing of credit default swapunder stochastic liabilities. Structural approaches and arbitrage-free principle areused to price the credit default swap. The function of default probability density isobtained by the distribution of the minimum of brown motion with drift, then weobtain the pricing formula of credit default swap by the above results.In the chapter three, we discuss the problem of pricing of basket default swapswith single factor model. we use Normal Inverse Gaussian distribution to buildmodel for default times, by doing that the semi-analytic expressions of distributionof default times and pricing formulae for basket default swaps are obtained. we alsocompare the first to default swaps'prices under Gaussian Model and Normal InverseGaussian Model with numerical examples in the last section.