The Random Rate Pricing Of Credit Default Swap

Credit default swaps are the most commonly credit derivatives used in the current financial market. The credit protection buyer’s credit risk will be transferred to investors (the credit protection seller) who are willing to take risks by the signing of the contract, investors will receive some income as a reward. Through credit default swaps, buyers of credit protection spread the credit risk and did not affect the relationship with customer. To some extent, it solves the "credit paradox". Based on the status of China’s banking’s credit risk highly centralized, credit derivatives in which credit default swaps take a great part should be introduced as soon as possible. Newly emerging risk management tools whose function is transferring risk should plays a role immediately to serve the financial markets. Over the last decade, due to the outstanding performance of the financial crisis, credit default swaps are more and more popular with market participants, it, theoretically and practically, becomes a academic hot spot. The credit default swap pricing model is made in which the interest rate is subject to Langetieg random process and the value of assets is subject to jump-diffusion processes. Model not only considers the jump process of the unexpected events, namely, the fluctuations of the value of the reference company’s assets and the strength of jump, which effect the price of credit default swaps, but also describes the diffusion process, any number of economic variables, subject to random distribution, which by acting affect the CDS in the underlying asset price, are allowed to join in the model. It gives the default probability by structural approach. On this basis, both in theory and practice, the article has a strong meaning by researching the individual’s credit default swap risk asset pricing.