TY - JOUR
T1 - Pricing credit default swaps with option-implied volatility
AU - Cao, Charles
AU - Yu, Fan
AU - Zhong, Zhaodong
PY - 2011
Y1 - 2011
N2 - Using the industry benchmark CreditGrades model to analyze credit default swap (CDS) spreads across a large number of companies during the 2007-09 credit crisis, the authors demonstrate that the performance of the model can be significantly improved by calibrating it with option-implied volatility rather than with historical volatility. Moreover, the advantage of using option-implied volatility is greater among companies with more volatile CDS spreads, more actively traded options, and lower credit ratings.
AB - Using the industry benchmark CreditGrades model to analyze credit default swap (CDS) spreads across a large number of companies during the 2007-09 credit crisis, the authors demonstrate that the performance of the model can be significantly improved by calibrating it with option-implied volatility rather than with historical volatility. Moreover, the advantage of using option-implied volatility is greater among companies with more volatile CDS spreads, more actively traded options, and lower credit ratings.
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U2 - https://doi.org/10.2469/faj.v67.n4.2
DO - https://doi.org/10.2469/faj.v67.n4.2
M3 - Article
VL - 67
SP - 67
EP - 76
JO - Financial Analysts Journal
JF - Financial Analysts Journal
SN - 0015-198X
IS - 4
ER -