%0 Journal Article %A Ye Zhongxing %A Zhuang Ruixin %T Pricing of Total Return Swap %D 2012 %R %J CHINESE JOURNAL OF APPLIED PROBABILITY AND STATISTICS %P 79-86 %V 28 %N 1 %X

This paper discusses the pricing of total
return swap which is one of the credit derivatives. As the total
return swap contracts are exposed to both interest rate risk and
default risk, this paper characterizes the interest rate risk
through HJM model. Intensity model and hybrid model are used to
characterize the default risk and to derive the corresponding
pricing formula for two cases when the default time and interest
rate are independent or correlated, respectively. Monte Carlo
simulation method is used here to derive the numerical solution of
the pricing problem.

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