Business Commons^™

An Evaluation Of Credit Default Swap And Default Risk Using Barrier Option, Kevin L. Lam

Honors College Theses

Credit default swaps, a traded financial instrument that provides credit protection in exchange for a periodic premium, is at the forefront of the exponential growth in the credit derivatives market, which has revolutionized the way credit risk is managed in recent years. This project offers a review into the application of option pricing theory in the valuation of default risk under a plain vanilla analysis and introduces a theoretical model that uses barrier options as a potential and perhaps more accurate tool for assessing default risk and its implications for valuing credit default swaps.