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Sibuya copulas

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  • Marius Hofert
  • Frederic Vrins
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    Abstract

    The standard intensity-based approach for modeling defaults is generalized by making the deterministic term structure of the survival probability stochastic via a common jump process. The survival copula of the vector of default times is derived and it is shown to be explicit and of the functional form as dealt with in the work of Sibuya. Besides the parameters of the jump process, the marginal survival functions of the default times appear in the copula. Sibuya copulas therefore allow for functional parameters and asymmetries. Due to the jump process in the construction, they allow for a singular component. Depending on the parameters, they may also be extreme-value copulas or Levy-frailty copulas. Further, Sibuya copulas are easy to sample in any dimension. Properties of Sibuya copulas including positive lower orthant dependence, tail dependence, and extremal dependence are investigated. An application to pricing first-to-default contracts is outlined and further generalizations of this copula class are addressed.

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    File URL: http://arxiv.org/pdf/1008.2292
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    Bibliographic Info

    Paper provided by arXiv.org in its series Papers with number 1008.2292.

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    Date of creation: Aug 2010
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    Handle: RePEc:arx:papers:1008.2292

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    Web page: http://arxiv.org/

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