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Basket CDS pricing with default intensities using a regime-switching shot-noise model

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  • Jie Guo
  • Yinghui Dong
  • Guojing Wang

Abstract

In this paper, we employ an intensity-based credit risk model with regime-switching to study the valuation of basket CDS in a homogeneous portfolio. We assume that the default intensities are described by some dependent regime-switching shot-noise processes and the individual jumps of the intensity are driven by a common factor. By using the conditional Laplace transform of the regime-switching shot-noise process, we obtain the closed form results for pricing the fair spreads of the basket CDS. We present some numerical examples to illustrate the effect of the model parameters on the fair spreads.

Suggested Citation

  • Jie Guo & Yinghui Dong & Guojing Wang, 2018. "Basket CDS pricing with default intensities using a regime-switching shot-noise model," Communications in Statistics - Theory and Methods, Taylor & Francis Journals, vol. 47(18), pages 4443-4458, September.
    • Handle: RePEc:taf:lstaxx:v:47:y:2018:i:18:p:4443-4458
    DOI: 10.1080/03610926.2017.1376087
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