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Published in:
2011 | OriginalPaper | Chapter
Market Models of Forward CDS Spreads
Authors : Libo Li, Marek Rutkowski
Published in: Stochastic Analysis with Financial Applications
Publisher: Springer Basel
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The paper re-examines and generalizes the construction of several variants of market models for forward CDS spreads, as first presented by Brigo [10]. We compute explicitly the joint dynamics for some families of forward CDS spreads under a common probability measure. We first examine this problem for single-period CDS spreads under certain simplifying assumptions. Subsequently, we derive, without any restrictions, the joint dynamics under a common probability measure for the family of one- and two-period forward CDS spreads, as well as for the family of one-period and co-terminal forward CDS spreads. For the sake of generality, we work throughout within a general semimartingale framework.