Study On Pricing Of Total Return Swap Which Is One Kind Of The Credit Derivatives

This paper describes the basic concept of a total return swap which is one kindof the credit derivatives, as well as its application in financial markets. As the totalreturn swap contracts are exposed to both interest rate risk and default risk, this pa-per characterizes the interest rate risk through HJM model and derives the formula topricing a Total Return Swap that is only exposed to interest rate risk. Intensity modeland hybrid model are used here to characterize the default risk and to derive the corre-sponding pricing formula. Monte Carlo simulation method is used here to derive thenumerical solution of the pricing problem.