The Study And Applied Analysis On The Pricing Modle Of The Interest Rate Swap Based On Two-side Default Risk

There are a variety of interest rate derivatives on financial market.Interest rate swap is one of the most important tool of financial market. It has the functions of price discovery, hedging risk and asset allocation and so on. The point of Interest rate swap is fixed-rate payer according to what kind of fixed interest rate paid to its counterparties. This is exactly the problem of interest rate swap pricing. The reasonable pricing of interest rate swaps, is helpful for financial institutions to avoid interest rate risk, and avoid the market interest rate fluctuations bringed by the uncertainty of future losses.Also is advantageous to the combination of interest rate swap deal smoothly. At the same time, it can improve the interest rate swap market liquidity. So as to improve the liquidity of the bond market. This can contact the bond market, money market, lending market and the connection between the price of personal consumption credit market. Then it greatly improve the efficiency of resource allocation and pricing in financial markets.Traditional risk-free pricing theory does not consider the possible risk of default of both parties. This affects the accuracy of the pricing, also does not conform to the actual. Duffie and Huang (1996) by using the credit quality simplified model to calculate the two-way default risk under the condition of interest rate swap pricing.This article will start from both sides of this swap which may be the actual situation of the risk of default. Asset value of both parties are assumed to be obey double exponential jump diffusion movement using the default risk pricing model.Under the condition of the default risk and the RMB interest rate swap pricing problem, we have applied research. We Select data of 3M-Shibor from January 31,2010 to January 30,2015 to estimate CIR model parameter and give the forecast of future floating interest rate.As another example, we will have a two-year transaction between Industrial and Commercial Bank of China and Industrial Bank. Finally, according to our pricing model, Give the applying example of the fixed rate of interest in the deal and the explanation of pricing results.