An Extended Market Model for Credit Derivatives
by Nordine Bennani of Société Générale, and
Abstract: In this paper, we present a market model for multi-issuers credit derivatives, designed in terms of forward CDS spreads and built under a standard risk-neutral probability. This is achieved through the introduction of a new family of processes, the Default Accumulator Process, which allows to fill the information gap between forward credit default swap and default time. The simulation framework is detailed in order to assert the tractability of the approach, and practical pricing examples are given.