Valuation of a Tranched Loan Credit Default Swap Index

Jin  Liang; Yujing  Zhou

doi:10.4236/ti.2011.24025

Jin Liang, Yujing Zhou

Abstract: This paper provides a methodology for valuing a Loan Credit Default Swap Index (LCDX) and its tranches involving both default and prepayment risks. The valuation is path dependence, where interest, default and prepayment rates are correlated stochastic processes following CIR processes. By Monte Carlo simulation, a numerical solution and team structure of tranched LCDX are obtained. Computing examples are provided.

Keywords: LCDX, Default, Prepayment, Monte Carlo Method

Cite this paper: nullJ. Liang and Y. Zhou, "Valuation of a Tranched Loan Credit Default Swap Index," Technology and Investment, Vol. 2 No. 4, 2011, pp. 240-246. doi: 10.4236/ti.2011.24025.

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