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The Journal of Fixed Income

The Journal of Fixed Income

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Primary Article

Valuing Default Swaps Under Market and Credit Risk Correlation

Robert A Jarrow and Yildiray Yildirim
The Journal of Fixed Income Spring 2002, 11 (4) 7-19; DOI: https://doi.org/10.3905/jfi.2002.319308
Robert A Jarrow
A professor of finance and economics, the Johnson Graduate School of Management at Cornell University in Ithaca, NY.
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  • For correspondence: raj15@cornell.edu
Yildiray Yildirim
An assistant professor of finance, the School of Management at Syracuse University in Syracuse, NY.
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  • For correspondence: yildiray@syr.edu
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Abstract

This article provides a simple analytic formula for valuing default swaps when both market and credit risk are correlated. Numerical implementation is illustrated by deducing the default probability parameters implicit in default swap quotes for 22 companies over a ten-week period. The results are compared to implicit estimates for the standard model (a special case of this approach) where market and credit risk are statistically independent.

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The Journal of Fixed Income
Vol. 11, Issue 4
Spring 2002
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Valuing Default Swaps Under Market and Credit Risk Correlation
Robert A Jarrow, Yildiray Yildirim
The Journal of Fixed Income Mar 2002, 11 (4) 7-19; DOI: 10.3905/jfi.2002.319308

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Valuing Default Swaps Under Market and Credit Risk Correlation
Robert A Jarrow, Yildiray Yildirim
The Journal of Fixed Income Mar 2002, 11 (4) 7-19; DOI: 10.3905/jfi.2002.319308
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