A new credit derivatives pricing model under uncertainty process

Abstract

Due to many uncertainties in the financial market, the pricing process of credit derivatives has not only the characteristic of randomness but also nonrandom uncertainties. Thus, the absence of uncertain factors will make the pricing model and the actual market insufficiently fit for risk analysis and derivative pricing. Following this, we introduce uncertainty theory into pricing derivatives, develop a new Uncertainty form pricing formula for CDS and put forward a One-factor Canonical Copula function, which shows that all kinds of uncertain factors in the market have a significant impact on credit spread. Moreover, it offers some relevant calculating samples of numerical values.