A Compound Pricing Approach for Credit Derivatives
In the previous chapters consider the risk that a counterparty to a derivative contract defaults on its contractual obligations. Additionally, in Section 5.6.2, we address the pricing of default-free derivatives on credit-risky bonds. In this chapter, we look at derivative instruments with credit risk as their underlying variable determining the payoff of the instrument. Such instruments are commonly called credit derivatives.
KeywordsCredit Risk Strike Price Credit Spread Bond Price Yield Spread
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