calibrate.sbtv {CreditRisk}R Documentation

SBTV model calibration to market CDS data

Description

Compares CDS rates quoted on the market with theoric CDS rates calculeted by the function cds and looks for the parameters to be used into sbtv for returning the default intensities corresponding to real market CDS rates performing the minimization of the objective function.

Usage

calibrate.sbtv(V0, p, cdsrate, r, t, ...)

Arguments

V0

firm value at time t = 0.

p

vector of the probability of different scenario (sum of p must be 1).

cdsrate

CDS rates from market.

r

a vector of risk-free rate.

t

a vector of debt maturity structure.

...

additional parameters used in cds function.

Details

Inside calibrate.sbtv, the function objfn takes the input a vector of parameters and returns the mean error occurred estimating CDS rates with cds function. The inputs used in cds are the default intensities calculated by the sbtv function with the calibrated parameters. In particular the error is calculated as:

\frac{1}{n}∑_{i=1}^n (c^{ds}-c^{ds}_{mkt})^2.

This quantity is a function of the default intensities and it is the objective function to be minimized in order to take optimal solutions for intensities.

Value

This function returns an object of class list with calculated parameters of sbtv model and the error occurred in the minimization procedure.

References

Damiano Brigo, Massimo Morini, Andrea Pallavicini (2013) Counterparty Credit Risk, Collateral and Funding. With Pricing Cases for All Asset Classes

Examples

calibrate.sbtv(V0 = 1, p = c(0.95, 0.05), cdsrate = cdsdata$Par.spread,
r = cdsdata$ED.Zero.Curve, t = cdsdata$Maturity)


[Package CreditRisk version 0.1.3 Index]