TY - JOUR T1 - Valuing Credit Default Swaps I JF - The Journal of Derivatives SP - 29 LP - 40 DO - 10.3905/jod.2000.319115 VL - 8 IS - 1 AU - John C. Hull AU - Alan D White Y1 - 2000/08/31 UR - https://pm-research.com/content/8/1/29.abstract N2 - One of the fastest growing areas of both derivatives trading and research right now is in contracts based on credit risk. The credit default swap is a standard instrument, offering the possibility of hedging against default by the issuer of an underlying bond. Several existing valuation methodologies differ in their assumptions about the payoff in case of a credit event. In this article, Hull and White present an approach based on the realistic assumption that the amount bondholders will claim in a default is based on the difference between the bond&’s post-default market value and its face value. An important contribution of this article is to use the term structure of risk-neutral implied default probabilities obtained from market prices for a set of bonds of the same issuer. The dependence of swap values on assumed recovery rates and the shape of the yield curve are explored. ER -