Multiple defaults and contagion risks
AbstractWe study multiple defaults where the global market information is modelled as progressive enlargement of filtrations. We shall provide a general pricing formula by establishing a relationship between the enlarged filtration and the reference default-free filtration in the random measure framework. On each default scenario, the formula can be interpreted as a Radon-Nikodym derivative of random measures. The contagion risks are studied in the multi-defaults setting where we consider the optimal investment problem in a contagion risk model and show that the optimization can be effectuated in a recursive manner with respect to the default-free filtration.
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Bibliographic InfoPaper provided by arXiv.org in its series Papers with number 0912.3132.
Date of creation: Dec 2009
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Web page: http://arxiv.org/
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-12-19 (All new papers)
- NEP-BAN-2009-12-19 (Banking)
- NEP-RMG-2009-12-19 (Risk Management)
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- Philippe Ehlers & Philipp Schönbucher, 2009.
"Background filtrations and canonical loss processes for top-down models of portfolio credit risk,"
Finance and Stochastics,
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- R. J. Elliott & M. Jeanblanc & M. Yor, 2000. "On Models of Default Risk," Mathematical Finance, Wiley Blackwell, vol. 10(2), pages 179-195.
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