| Summary: | 碩士 === 國立高雄第一科技大學 === 金融所 === 98 === In recent years, the emergence of credit derivative products has been developed as the result of the rapid development of derivative products. Among them, credit default swaps has the largest trading volume over the global market. The latest new product has been developed substituting for credit default swaps in the market, known as equity default swaps.
Due to the fact that stock price does not always act as a continuous process, sometimes an unusual jump exists in some situations like major news will give rise to the stock price change sharply. Therefore, in order to capture the sudden changes in firm’s asset value, we use jump-diffusion model by Merton (1976) for pricing and we also compared the performance with Merton (1974) diffusion model.
Moreover, by using the EM algorithm, the problem of unobservable firm’s asset value under Merton (1974) and Merton (1976) is overcome by Duan, Gauthier and Simonato (2004), and Wong and Li (2006) respectively. EM algorithm is then applied to estimate the parameters required for pricing and calculating a reasonable EDS spread. Furthermore, we also do the sensitivity analysis of factors which would affect the EDS spread.
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