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Volume 4 Number 3, Fall 2008 Research Papers Break on through to the single side Dilip B. Madan
Robert H. Smith School of Business, Van Munching Hall 4409, University of Maryland, College Park, MD 20742, USA; email: dbm@rhsmith.umd.edu Wim Schoutens
Department of Mathematics, KU Leuven, Celestijnenlaan 200 B, B-3001 Leuven, Belgium; email: wim@schoutens.be We employ a Lévy process subject to only negative jumps to describe the motion of asset values. This specification permits fast computation of first-passage probabilities. As a result, we are able to calibrate all credit default swap (CDS) curves for the 125 iTraxx underliers weekly and develop a time series for the implied parameter values. A variety of models are investigated for the process: gamma, inverse Gaussian and the one-sided CGMY, here referred to as CMY.
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