VALUING CREDIT DEFAULT SWAPS I: NO COUNTERPARTY DEFAULT RISK

This paper provides a methodology for valuing credit default swaps when the payoff is contingent on default by a single reference entity and there is no counterparty default risk. The paper tests the sensitivity of credit default swap valuations to assumptions about the expected recovery rate. It also tests whether approximate no-arbitrage arguments give accurate valuations and provides an example of the application of the methodology to real data. In a companion paper entitled Valuing Credit Default Swaps II: Modeling Default Correlation, the analysis is extended to cover situations where the payoff is contingent on default by multiple reference entities and situations where there is counterparty default risk

VALUING CREDIT DEFAULT SWAPS II: MODELING DEFAULT CORRELATIONS

This paper extends the analysis in Valuing Credit Default Swaps I: No Counter party Default Risk to provide a methodology for valuing credit default swaps that takes account of counterparty default risk and allows the payoff to be contingent on defaults by multiple reference entities. It develops a model of default correlations between different corporate or sovereign entities. The model is applied to the valuation of vanilla credit default swaps when the seller may default and to the valuation of basket credit default swaps

FORWARD RATE VOLATILITIES, SWAP RATE VOLATILITIES, AND THE IMPLEMENTATION OF THE LIBOR MARKET MODEL

This paper presents a number of new ideas concerned with the implementation of the LIBOR market model and its extensions. It develops and tests an analytic approximation for calculating the volatilities used by the market to price European swap options from the volatilities used to price interest rate caps. The approximation is very accurate for the range of market parameters normally encountered and enables swap option volatility skews to be implied from cap volatility skews. It also allows the LIBOR market model to be calibrated to broker quotes on caps and European swap options so that other interest rate derivatives can be valued

The General Hull-White Model and Super Calibration

Term structure models are widely used to price interest-rate derivatives such as swaps and bonds with embedded options. This paper describes how a general one-factor model of the short-rate can be implemented as a recombining trinomial tree and calibrated to market prices of actively traded instruments such as caps and swap options. The general model encompasses most popular one-factor Markov models as special cases. The implementation and the calibration procedures are sufficiently general that they can select the functional form of the model that best fits the market prices. This allows the model to fit the prices of in- and out-ofthe- money options when there is a volatility skew. It also allows the model to work well very low interest-rate economies such as Japan where other models often fail

VALUING CREDIT DEFAULT SWAPS II: MODELING DEFAULT CORRELATIONS

This paper extends the analysis in Valuing Credit Default Swaps I: No Counter party Default Risk to provide a methodology for valuing credit default swaps that takes account of counterparty default risk and allows the payoff to be contingent on defaults by multiple reference entities. It develops a model of default correlations between different corporate or sovereign entities. The model is applied to the valuation of vanilla credit default swaps when the seller may default and to the valuation of basket credit default swaps

FORWARD RATE VOLATILITIES, SWAP RATE VOLATILITIES, AND THE IMPLEMENTATION OF THE LIBOR MARKET MODEL

This paper presents a number of new ideas concerned with the implementation of the LIBOR market model and its extensions. It develops and tests an analytic approximation for calculating the volatilities used by the market to price European swap options from the volatilities used to price interest rate caps. The approximation is very accurate for the range of market parameters normally encountered and enables swap option volatility skews to be implied from cap volatility skews. It also allows the LIBOR market model to be calibrated to broker quotes on caps and European swap options so that other interest rate derivatives can be valued

Blue sensors : technology and cooperative monitoring in UN peacekeeping.

For over a half-century, the soldiers and civilians deployed to conflict areas in UN peacekeeping operations have monitored ceasefires and peace agreements of many types with varying degrees of effectiveness. Though there has been a significant evolution of peacekeeping, especially in the 1990s, with many new monitoring functions, the UN has yet to incorporate monitoring technologies into its operations in a systematic fashion. Rather, the level of technology depends largely on the contributing nations and the individual field commanders. In most missions, sensor technology has not been used at all. So the UN has not been able to fully benefit from the sensor technology revolution that has seen effectiveness greatly amplified and costs plummet. This paper argues that monitoring technologies need not replace the human factor, which is essential for confidence building in conflict areas, but they can make peacekeepers more effective, more knowledgeable and safer. Airborne, ground and underground sensors can allow peacekeepers to do better monitoring over larger areas, in rugged terrain, at night (when most infractions occur) and in adverse weather conditions. Technology also allows new ways to share gathered information with the parties to create confidence and, hence, better pre-conditions for peace. In the future sensors should become 'tools of the trade' to help the UN keep the peace in war-torn areas