System and method for determining model credit default swap spreads
AssigneeMorgan Stanley Capital International, Inc.
InventorsLisa R. Goldberg, Rajnish Kamat, Vijay Poduri
Life of this patent
Estimating the term…
Abstract
A system and method of determining a model default swap spread for a firm which includes the following steps: (i) determining a calibration group of the firm, wherein the calibration group comprises other firms having a region, a sector and a coarse quality related to the firm; (ii) setting firm leverage variables through combining observable data with a value of at least one model parameter; (iii) calibrating variables based on the calibration group; (iv) calculating the model default swap spread based on at least one of calibration variables; and (v) storing the model default swap spread.
Claims23
A method of determining a model default swap spread for a firm comprising:
- determining, by a computer system, a calibration group of the firm, wherein the calibration group comprises other firms having a region, a sector and a coarse quality related to the firm, wherein the computer system comprises at least one processor;
- setting, by the computer system, firm leverage variables μL, σL2 and maxL through combining observable data with a value of at least one model parameter, wherein μL is the expected firm leverage, σL2 is the variance of the firm leverage, and maxL is the largest possible value for firm leverage L;
- calibrating, by the computer system, variables μL, σL2, maxL, and firm value variables V and σV based on the calibration group;
- calculating, by the computer system, the model default swap spread based on at least one of calibration variables μL, σL2, maxL, V and σV;
- and
- storing the model default swap spread in a database of the computer system.
A non-transitory computer readable medium having instructions stored thereon which, when executed by a processor, cause the processor to determine a model default swap spread for a firm by:
- determining a calibration group of the firm, wherein the calibration group comprises other firms having a region, a sector and a coarse quality related to the firm;
- setting firm leverage variables μL, σL2 and maxL through combining observable data with a value of at least one model parameter, wherein μL is the expected firm leverage, σL2 is the variance of the firm leverage, and maxL is the largest possible value for firm leverage L;
- calibrating variables μL, σL2, maxL, and firm value variables V and σV based on the calibration group;
- and
- calculating the model default swap spread based on at least one of calibration variables μL, σL2, maxL, V and σV.
A system for determining a model default swap spread for a firm comprising:
- a processor;
- and
- a memory in communication with the processor, wherein the memory stores instructions which when executed by the processor causes the processor to determine a model default swap spread for a firm by:
- determining a calibration group of the firm, wherein the calibration group comprises other firms having a region, a sector and a coarse quality related to the firm;
- setting firm leverage variables μL, σL2 and maxL through combining observable data with a value of at least one model parameter, wherein μL is the expected firm leverage, σL2 is the variance of the firm leverage, and maxL is the largest possible value for firm leverage L;
- calibrating variables μL, σL2, maxL, and firm value variables V and σV based on the calibration group;
- and
- calculating the model default swap spread based on at least one of calibration variables μL, σL2, maxL, V and σV.
A system for determining an implied default swap spread for a firm comprising:
- a processor;
- and
- a database in communication with the processor, wherein the database stores data regarding firm value and firm leverage, and wherein the processor is programmed to determine an implied default swap spread for a firm by:
- determining a calibration group of the firm, wherein the calibration group comprises other firms having a region, a sector and a coarse quality related to the firm;
- setting firm leverage variables μL, σL2 and maxL through combining observable data with a value of at least one model parameter, wherein μL is the expected firm leverage, σL2 is the variance of the firm leverage, and maxL is the largest possible value for firm leverage L;
- calibrating variables μL, σL2, maxL, and firm value variables V and σV based on the calibration group;
- and
- calculating the model default swap spread based on at least one of the calibration variables μL, σL2, maxL, V and σV.
Dependencies are inferred from the claim text.