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An exact formula for default swaptions? pricing in the SSRJD stochastic intensity model

Abstract: We develop and test a fast and accurate semi-analytical formula for single-name default swaptions in the context of the shifted square root jump diffusion (SSRJD) default intensity model. The formula consists of a decomposition of an option on a summation of survival probabilities in a summation of options on the underlying survival probabilities, where the strike for each option is adjusted.

Published on 5th September 2011
Authors Damiano Brigo, Naoufel El-Bachir
Series Reference 2007-14