Collin-Dufresne, Pierre; Goldstein, Robert S.; Yang, Fan - National Bureau of Economic Research (NBER) - 2010
We investigate a structural model of market and firm-level dynamics in order to jointly price long-dated S&P 500 options and tranche spreads on the five-year CDX index. We demonstrate the importance of calibrating the model to match the entire term structure of CDX index spreads because it...