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Multiscale Intensity Models for Single Name Credit Derivatives


  • E. Papageorgiou
  • R. Sircar


We study the pricing of defaultable derivatives, such as bonds, bond options, and credit default swaps in the reduced form framework of intensity-based models. We use regular and singular perturbation expansions on the intensity of default from which we derive approximations for the pricing functions of these derivatives. In particular, we assume an Ornstein-Uhlenbeck process for the interest rate, and a two-factor diffusion model for the intensity of default. The approximation allows for computational efficiency in calibrating the model. Finally, empirical evidence on the existence of multiple scales is presented by the calibration of the model on corporate yield curves.

Suggested Citation

  • E. Papageorgiou & R. Sircar, 2008. "Multiscale Intensity Models for Single Name Credit Derivatives," Applied Mathematical Finance, Taylor & Francis Journals, vol. 15(1), pages 73-105.
  • Handle: RePEc:taf:apmtfi:v:15:y:2008:i:1:p:73-105
    DOI: 10.1080/13504860701352222

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    References listed on IDEAS

    1. Francis A. Longstaff & Sanjay Mithal & Eric Neis, 2005. "Corporate Yield Spreads: Default Risk or Liquidity? New Evidence from the Credit Default Swap Market," Journal of Finance, American Finance Association, vol. 60(5), pages 2213-2253, October.
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    1. repec:kap:compec:v:51:y:2018:i:3:d:10.1007_s10614-016-9608-x is not listed on IDEAS
    2. repec:gam:jsusta:v:10:y:2018:i:4:p:1027-:d:138895 is not listed on IDEAS

    More about this item


    Defaultable bond; credit default swap; defaultable bond option; asymptotic approximation; time scales; JEL classification : G12; G13;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing


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