CREDIT DEFAULT SWAPS IN TWO-DIMENSIONAL MODELS WITH VARIOUS INFORMATIONS FLOWS

Pavel V. Gapeev and Monique Jeanblanc ()
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Pavel V. Gapeev: Department of Mathematics, London School of Economics, Houghton Street, London WC2A 2AE, UK
Monique Jeanblanc: LaMME, Univ Evry-Université Paris Saclay, 23 Boulevard de France, 91037 Evry Cedex, France

International Journal of Theoretical and Applied Finance (IJTAF), 2020, vol. 23, issue 02, 1-28

Abstract: We study a credit risk model of a financial market in which the dynamics of intensity rates of two default times are described by linear combinations of three independent geometric Brownian motions. The dynamics of two default-free risky asset prices are modeled by two geometric Brownian motions which are dependent of the ones describing the default intensity rates. We obtain closed form expressions for the no-arbitrage prices of both risk-free and risky credit default swaps given the reference filtration initially and progressively enlarged by the two default times. The accessible default-free reference filtration is generated by the standard Brownian motions driving the model.

Keywords: Default times; credit default swaps; counterparty risk; geometric Brownian motion; initial and progressive enlargements of filtrations (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (1)

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DOI: 10.1142/S0219024920500107

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