Credit Risky Securities Valuation under a Contagion Model with Interacting Intensities
We study a three-firm contagion model with counterparty risk and apply this model to price defaultable bonds and credit default swap (CDS). This model assumes that default intensities are driven by external common factors as well as other defaults in the system. Using the “total hazard” approach, de...
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| Main Authors: | , |
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| Format: | Article |
| Language: | English |
| Published: |
Wiley
2011-01-01
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| Series: | Journal of Applied Mathematics |
| Online Access: | http://dx.doi.org/10.1155/2011/158020 |
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| _version_ | 1849415216299769856 |
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| author | Anjiao Wang Zhongxing Ye |
| author_facet | Anjiao Wang Zhongxing Ye |
| author_sort | Anjiao Wang |
| collection | DOAJ |
| description | We study a three-firm contagion model with counterparty risk and apply this model
to price defaultable bonds and credit default swap (CDS). This model assumes that default intensities are driven by external common factors as well as other defaults in the system. Using the “total hazard” approach, default times can be generated and the joint density function is obtained. We represent the pricing method of defaultable bonds and obtain the closed-form pricing formulas. By the approach of “change of measure,” analytical solutions of CDS
swap rate (swap premuim) are derived in the continuous time framework and the discrete time framework, respectively. |
| format | Article |
| id | doaj-art-576824d1ff9645f3b9a7151a5135fd08 |
| institution | Kabale University |
| issn | 1110-757X 1687-0042 |
| language | English |
| publishDate | 2011-01-01 |
| publisher | Wiley |
| record_format | Article |
| series | Journal of Applied Mathematics |
| spelling | doaj-art-576824d1ff9645f3b9a7151a5135fd082025-08-20T03:33:35ZengWileyJournal of Applied Mathematics1110-757X1687-00422011-01-01201110.1155/2011/158020158020Credit Risky Securities Valuation under a Contagion Model with Interacting IntensitiesAnjiao Wang0Zhongxing Ye1Department of Mathematics, Shanghai Jiao Tong University, Shanghai 200240, ChinaDepartment of Mathematics, Shanghai Jiao Tong University, Shanghai 200240, ChinaWe study a three-firm contagion model with counterparty risk and apply this model to price defaultable bonds and credit default swap (CDS). This model assumes that default intensities are driven by external common factors as well as other defaults in the system. Using the “total hazard” approach, default times can be generated and the joint density function is obtained. We represent the pricing method of defaultable bonds and obtain the closed-form pricing formulas. By the approach of “change of measure,” analytical solutions of CDS swap rate (swap premuim) are derived in the continuous time framework and the discrete time framework, respectively.http://dx.doi.org/10.1155/2011/158020 |
| spellingShingle | Anjiao Wang Zhongxing Ye Credit Risky Securities Valuation under a Contagion Model with Interacting Intensities Journal of Applied Mathematics |
| title | Credit Risky Securities Valuation under a Contagion Model with Interacting Intensities |
| title_full | Credit Risky Securities Valuation under a Contagion Model with Interacting Intensities |
| title_fullStr | Credit Risky Securities Valuation under a Contagion Model with Interacting Intensities |
| title_full_unstemmed | Credit Risky Securities Valuation under a Contagion Model with Interacting Intensities |
| title_short | Credit Risky Securities Valuation under a Contagion Model with Interacting Intensities |
| title_sort | credit risky securities valuation under a contagion model with interacting intensities |
| url | http://dx.doi.org/10.1155/2011/158020 |
| work_keys_str_mv | AT anjiaowang creditriskysecuritiesvaluationunderacontagionmodelwithinteractingintensities AT zhongxingye creditriskysecuritiesvaluationunderacontagionmodelwithinteractingintensities |