Joint survival probability via truncated invariant copula

Jeong-Hoon Kim, Yong-Ki Ma and Chan Yeol Park

Chaos, Solitons & Fractals, 2016, vol. 85, issue C, 68-76

Abstract: Given an intensity-based credit risk model, this paper studies dependence structure between default intensities. To model this structure, we use a multivariate shot noise intensity process, where jumps occur simultaneously and their sizes are correlated. Through very lengthy algebra, we obtain explicitly the joint survival probability of the integrated intensities by using the truncated invariant Farlie–Gumbel–Morgenstern copula with exponential marginal distributions. We also apply our theoretical result to pricing basket default swap spreads. This result can provide a useful guide for credit risk management.

Keywords: Joint survival probability; Truncated invariant FGM copula; Shot noise process; Basket default swap; Intensity model (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:chsofr:v:85:y:2016:i:c:p:68-76

DOI: 10.1016/j.chaos.2016.01.012

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