CDS pricing using a Copula-Monte Carlo Approach

Reyna Susana García-Ruiz, Francisco López-Herrera, Salvador Cruz-Aké


This paper proposes a methodology, based on Copula, Monte Carlo, and Bootstrap methodologies, to price a CDS without using more data than the one provided by the financial statements. This means that our methodology could be suitable not only for firms listed in the exchange market but also for nonlisted firms, so the results shown on the paper could extend the possibility of pricing CDS. The propounded methodology links the default probabilities to some key variables which dependence structure is captured by a copula and recombine it for pricing the CDS. To test the validity of the proposed methodology, we used data from TV Azteca (a media Mexican Company with recent financial concerns) and we obtained a CDS spread similar to the default rate implied in its credit risk rating.

Palabras clave

CDS; Copula-Monte Carlo; probabilidad de incumplimiento

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Revista de Investigación en Ciencias Contables y Administrativas , Volumen V, Número 2, enero-julio de 2020, es una publicación semestral en formato electrónico, editada por la  Universidad Michoacana de San Nicolás de Hidalgo a través de la  Facultad de Contaduría y Ciencias Administrativas , Av. Gral. Francisco J. Múgica S/N, Ciudad Universitaria, Edificio AII, Morelia, Michoacán, México, Tel. y Fax (443) 3-16-74-11, C.P. 58030, Editor de la revista: Dr. Oscar De la Torre. Reserva de Derechos al Uso Exclusivo ID: 04-2019-061212154000-203, otorgado por INDAUTOR, ISSN: 2448-606X

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