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Abstract
In this paper, we propose a hybrid method that combines a hazard rate model with the CreditGrades model to value credit default swap (CDS) contracts. The CreditGrades model is considered an industry benchmark for analyzing credit derivatives. The hybrid method makes use of the default probability generated by the CreditGrades model to determine the hazard rate specific to the bond issuing firm. In this way, the hybrid method is empirically shown to produce better CDS forecast.
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