Journal of Credit Risk

Break on through to the single side

Dilip B. Madan, Wim Schoutens


We employ a Lévy process subject to only 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 credit default swap (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.

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