Credit Default Swaps and the mixed-fractional CEV model
Mathematical Finance
2022-11-15 v1
Abstract
This paper explores the capabilities of the Constant Elasticity of Variance model driven by a mixed-fractional Brownian motion (mfCEV) [Axel A. Araneda. The fractional and mixed-fractional CEV model. Journal of Computational and Applied Mathematics, 363:106-123, 2020] to address default-related financial problems, particularly the pricing of Credit Default Swaps. The increase in both, the probability of default and the CDS spreads under mixed-fractional diffusion compared to the standard Brownian case, improves the lower empirical performance of the standard Constant Elasticity of Variance model (CEV), yielding a more realistic model for credit events.
Keywords
Cite
@article{arxiv.2211.07564,
title = {Credit Default Swaps and the mixed-fractional CEV model},
author = {Axel A. Araneda},
journal= {arXiv preprint arXiv:2211.07564},
year = {2022}
}
Comments
5 pages, 1 figure, 1 table