Credit derivatives pricing with default density term structure modelled by Lévy random fields
We model the term structure of the forward default intensity and the default density by using Lévy random fields, which allow us to consider the credit derivatives with an after-default recovery payment. As applications, we study the pricing of a defaultable bond and represent the pricing kernel as the unique solution of a parabolic integro-differential equation. Finally, we illustrate by numerical examples the impact of the contagious jump risks on the defaultable bond price in our model.
|Date of creation:||13 Dec 2011|
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- Ernst Eberlein & Sebastian Raible, 1999. "Term Structure Models Driven by General Lévy Processes," Mathematical Finance, Wiley Blackwell, vol. 9(1), pages 31-53.
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World Scientific Book Chapters,in: Financial Derivatives Pricing Selected Works of Robert Jarrow, chapter 13, pages 277-305
World Scientific Publishing Co. Pte. Ltd..
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