A Markov regime switching jump-diffusion model for the pricing of portfolio credit derivatives

Xue Liang, Guojing Wang and Yinghui Dong

Statistics & Probability Letters, 2013, vol. 83, issue 1, 373-381

Abstract: The class of reduced form models is a very important class of credit risk models, and the modeling of the default dependence structure is essential in the reduced form models. This paper proposes a thinning-dependent structure model in the reduced form framework. The intensity process is the jump-diffusion version of the Vasicek model with the coefficients allowed to switch in different regimes. This article will investigate the joint (conditional) survival probability and the pricing formulas of portfolio credit derivatives. The exact analytical expressions are provided.

Keywords: Thinning-dependence structure; Regime switching; Jump-diffusion model; Joint conditional survival probability; Portfolio credit derivatives (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (2)

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DOI: 10.1016/j.spl.2012.10.003

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