ABSTRACT

The topic of this work is a detailed study of stylized credit default swaps within the framework of a generic reduced-form credit risk model. By a reduced-form model we mean any model of a single default or several dependent defaults in which we can explicitly identify the distribution of default times. Therefore, the results presented in this work have the potential to cover various alternative approaches, which are usually classified as, for instance, value-of-the-firm approach, intensity-based approach, copulabased approach, etc. The main goal is to develop general results dealing with the relative valuation of defaultable claims (eg, basket credit derivatives) with respect to market values of traded credit-risk sensitive securities.