Survival Measures and Interacting Intensity Model: with Applications in Guaranteed Debt Pricing
This paper studies survival measures in credit risk models. Survival measure, which was first introduced by Schonbucher  in the framework of defaultable LMM, has the advantage of eliminating default indicator variable directly from the expectation by absorbing it into Randon-Nikodym density process. Survival measure approach was further extended by Collin-Duresne to avoid calculating a troublesome jump in IBPR reduced-form model. This paper considers survival measure in "HBPR" model, i.e. default time is characterized by Cox construction, and studies the relevant drift changes and martingale representations. This paper also takes advantage of survival measure to solve the looping default problem in interacting intensity model with stochastic intensities. Guaranteed debt is priced under this model, as an application of survival measure and interacting intensity model. Detailed numerical analysis is performed in this paper to study influence of stochastic pre-default intensities and contagion on value of a two firms' bilateral guaranteed debt portfolio.
|Date of creation:||07 Aug 2010|
|Date of revision:||27 Dec 2010|
|Contact details of provider:|| Postal: Ludwigstraße 33, D-80539 Munich, Germany|
Web page: https://mpra.ub.uni-muenchen.de
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Robert A. Jarrow, 2001.
"Counterparty Risk and the Pricing of Defaultable Securities,"
Journal of Finance,
American Finance Association, vol. 56(5), pages 1765-1799, October.
- Robert A. Jarrow & Fan Yu, 2008. "Counterparty Risk and the Pricing of Defaultable Securities," World Scientific Book Chapters, in: Financial Derivatives Pricing Selected Works of Robert Jarrow, chapter 20, pages 481-515 World Scientific Publishing Co. Pte. Ltd..
- Kwai Leung & Yue Kwok, 2009. "Counterparty Risk for Credit Default Swaps: Markov Chain Interacting Intensities Model with Stochastic Intensity," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 16(3), pages 169-181, September.
- Philipp J. Schönbucher, 2000. "A Libor Market Model with Default Risk," Bonn Econ Discussion Papers bgse15_2001, University of Bonn, Germany.
- P. Collin-Dufresne & R. Goldstein & J. Hugonnier, 2004. "A General Formula for Valuing Defaultable Securities," Econometrica, Econometric Society, vol. 72(5), pages 1377-1407, 09.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:27698. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter)
If references are entirely missing, you can add them using this form.