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An investigation into the mechanics and pricing of credit derivativesEraman, Direen 11 1900 (has links)
With the exception of holders of default-free instruments, a key risk run by investors
is credit risk. To meet the need of investors to hedge this risk, the market uses credit
derivatives.
The South African credit derivatives market is still in its infancy and only the very
simplistic instruments are traded. One of the reasons is due to the technical
sophistication required in pricing these instruments. This dissertation introduces the
key concepts of risk neutral probabilities, arbitrage free pricing, martingales, default
probabilities, survival probabilities, hazard rates and forward spreads. These
mathematical concepts are then used as a building block to develop pricing formulae
which can be used to infer valuations to the most popular credit derivatives in the
South African financial markets. / Operations Research / M.Sc. (Operations Research)
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An investigation into the mechanics and pricing of credit derivativesEraman, Direen 11 1900 (has links)
With the exception of holders of default-free instruments, a key risk run by investors
is credit risk. To meet the need of investors to hedge this risk, the market uses credit
derivatives.
The South African credit derivatives market is still in its infancy and only the very
simplistic instruments are traded. One of the reasons is due to the technical
sophistication required in pricing these instruments. This dissertation introduces the
key concepts of risk neutral probabilities, arbitrage free pricing, martingales, default
probabilities, survival probabilities, hazard rates and forward spreads. These
mathematical concepts are then used as a building block to develop pricing formulae
which can be used to infer valuations to the most popular credit derivatives in the
South African financial markets. / Operations Research / M.Sc. (Operations Research)
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