The Valuation Of Credit Default Swap Contracts

Credit default swaps are always favored by financial practitioners as derivatives that can guarantee credit risk and transfer credit risk.In September 2016,China issued the relevant trading rules related to credit derivatives in our over-the-counter market.Therefore,the application of credit default swaps in our country will be more and more.At present,the domestic research on credit default swap mainly focuses on the pricing method and model of the credit default swap spread,while the research on the valuation of credit default swap contracts is relatively few.This paper examines the valuation of a credit default swap contract,which assumes that the market has a bid-ask price spread.In this thesis,we first describe some basic concepts of the credit default swaps,and then describe the no-arbitrage pricing theorem for dividend-paying securities in the market with bid-ask price spreads,which is from the paper of Bielecki(2015).The paper elaborates the value process,the self-financing condition and the First Fundamental Theorem of Asset Pricing in the market with bid-ask price spreads.It also describes a consistent pricing system,which is convenient to judge the market to satisfy the no-arbitrage condition,and sets out the definition and representation theorem of the superhedging ask price and subhedging bid price for a contingent claim contract.Finally,this thesis uses some important methods and conclusions about the no-arbitrage pricing for dividend-paying securities to prove that the market with bid-ask price spreads including the credit default swap contracts is satisfied for the no-arbitrage condition,and then gives the default time and default probability in the structural credit model and the reduced form credit model that determines the valuation of the credit default swap contracts.At last,we choose the reduced form credit model and assume that the interest rate process and the default process are independent and then we get the specific valuation expression formula of the superhedging ask price and subhedging bid price of the credit default swap contract for a single bond.