Break on Through to the Single Side

20 Pages Posted: 26 Jul 2007

See all articles by Dilip B. Madan

Dilip B. Madan

University of Maryland - Robert H. Smith School of Business

Wim Schoutens

KU Leuven - Department of Mathematics

Date Written: July 26, 2007

Abstract

We employ a Levy process subject only to negative jumps to describe the motion of asset values. This specification permits fast computation of first passage probabilities. As a result we are able to calibrate all CDS curves for the 125 ITRAXX underliers weekly and develop a time series for the implied parameter values. A variety of models are investigated for the process, gamma, inverse gaussian, and the one sided CGMY here referred to as CMY.

Keywords: Default Probabilities, Levy Models, CDS pricing

JEL Classification: G10, G12, G13

Suggested Citation

Madan, Dilip B. and Schoutens, Wim, Break on Through to the Single Side (July 26, 2007). Available at SSRN: https://ssrn.com/abstract=1003144 or http://dx.doi.org/10.2139/ssrn.1003144

Dilip B. Madan (Contact Author)

University of Maryland - Robert H. Smith School of Business ( email )

College Park, MD 20742-1815
United States
301-405-2127 (Phone)
301-314-9157 (Fax)

Wim Schoutens

KU Leuven - Department of Mathematics ( email )

Celestijnenlaan 200 B
Leuven, B-3001
Belgium

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