View source: R/calibrate.cds.R
calibrate.cds | R Documentation |
Compares CDS rates quoted on market with theoric CDS rates and looks for default intensities that correspond to real market CDS rates trough a minimization problem of an objective function.
calibrate.cds(r, t, Tj, cdsrate, ...)
r |
interest rates. |
t |
premiums timetable. |
Tj |
CDS maturities. |
cdsrate |
CDS rates from market. |
... |
additional parameters used in |
Inside calibrate.cds
, the function err.cds
takes the input a
vector of intensities and return the mean error occurred estimating CDS rates with
cds
. In particular such error is calculated as:
\frac{1}{n}\sum_{i=1}^n (c^{ds}-c^{ds}_{mkt})^2.
This quantity is a function of default intensities and is the our objective function to be minimized in order to take optimal solutions for intensities.
returns an object of class list
with calculated intensities and the
error occurred in the minimization procedure.
David Lando (2004) Credit risk modeling
Damiano Brigo, Massimo Morini, Andrea Pallavicini (2013) Counterparty Credit Risk, Collateral and Funding. With Pricing Cases for All Asset Classes
calibrate.cds( r = cdsdata$ED.Zero.Curve, t = seq(.5, 30, by = 0.5),
Tj = c(1, 2, 3, 4, 5, 7, 10, 20, 30), cdsrate = cdsdata$Par.spread, RR = 0.4)
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