Hedging of Credit Default Swaptions in a Hazard Process Model
by Tomasz Bielecki of the Illinois Institute of Technology,
December 14, 2008
Abstract: The paper discusses valuation and hedging of CDS swaptions using the hazard process methodology. Various approaches to modeling of conditional survival density are discussed. A detailed analysis of valuation and replication of CDS swaptions in the CIR framework is provided.
Keywords: CDS swaptions, conditional survival density, immersion property, Ito-Kunita-Wentzell formula, CIR intensity.