Valuing Credit Default Swaps Ii: Modeling Default Correlations

26 Pages Posted: 4 Nov 2008

See all articles by John C. Hull

John C. Hull

University of Toronto - Rotman School of Management

Alan White

University of Toronto - Rotman School of Management

Date Written: April 2000

Abstract

This paper extends the analysis in Valuing Credit Default Swaps I: No Counter party Default Risk to provide a methodology for valuing credit default swaps that takesaccount of counterparty default risk and allows the payoff to be contingent on defaults by multiple reference entities. It develops a model of default correlations between different corporate or sovereign entities. The model is applied to the valuation of vanilla credit default swaps when the seller may default and to the valuation of basket credit default swaps.

Suggested Citation

Hull, John C. and White, Alan, Valuing Credit Default Swaps Ii: Modeling Default Correlations (April 2000). NYU Working Paper No. FIN-00-022, Available at SSRN: https://ssrn.com/abstract=1295225

John C. Hull

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada
(416) 978-8615 (Phone)
416-971-3048 (Fax)

Alan White

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada
416-978-3689 (Phone)
416-971-3048 (Fax)

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