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Price Credit Derivative Instruments

Create credit derivative instrument object, associate the object with a model, and specify pricing method

A credit derivative is a financial instrument designed to separate and then transfer the risk of an event of credit default to an entity other than the debtholder. A credit default swap is a particular type of swap designed to transfer the credit exposure of fixed income products between two or more parties. In a credit default swap, the buyer of the swap makes payments to the swap’s seller up until the maturity date of a contract. In return, the seller agrees that, in the event that the debt issuer defaults or experiences another credit event, the seller will pay the buyer the security’s premium as well all interest payments that would have been paid between that time and the security’s maturity date. A credit default swap is, in effect, insurance against non-payment. This toolbox provides functionality to price credit default swaps and credit default swap options. Also, you can compute the default probability and hazard rate values from market data.

The object-based framework supports a workflow for creating instruments, models, and pricer objects to price financial instruments. Using these objects, you can price interest-rate, inflation, equity, commodity, FX, or credit derivative instruments. The object-based workflow is an alternative to pricing financial instruments using functions. Working with modular objects for instruments, models, and pricers, you can easily reuse these objects to compare instrument prices for different models and pricing engines. You can use the object-based workflow to price a single instrument or to price a collection of instruments in a portfolio. For more information on the workflow, see Get Started with Workflows Using Object-Based Framework for Pricing Financial Instruments.

Create a credit derivative object using fininstrument, associate the object with a model using finmodel, and then specify a pricing method using finpricer.

Functions

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fininstrumentCreate specified instrument object type
finmodelCreate specified model object type
finpricerCreate pricing method
priceCompute price for credit derivative instrument with Credit pricer
priceCompute price for interest-rate, equity, or credit derivative instrument with Analytic pricer
defprobcurveCreate defprobcurve object for credit instrument
survprobsCompute survival probability based on default probability curve
hazardratesCompute hazard rates based on default probability curve
defprobstripBootstrap defprobcurve object from market CDS instruments

Objects

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CDSCDS instrument object
CDSOptionCDSOption instrument object
CDSBlackCreate CDSBlack model object for CDSOption instrument
defprobcurveCreate defprobcurve object for credit instrument
CreditCreate Credit pricer object for CDS instrument using defprobcurve
CDSBlackCreate CDSBlack pricer object for CDSOption instrument using CDSBlack model

Examples and How To

Concepts