The th default time distribution and basket default swap pricing

Geon Choe and Hyun Jang

Quantitative Finance, 2011, vol. 11, issue 12, 1793-1801

Abstract: We propose an alternative method for finding the kth default time distribution in a homogeneous portfolio with dependency. Analysing order statistics of default times with a one-factor Gaussian copula model, we explicitly derive the probability distribution. Moreover, we compute the prices of basket default swaps such as the kth to default swaps and m out of n default swaps within our framework. To test the efficiency and accuracy of our method we compare the theoretical prediction with existing methods.

Date: 2011
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DOI: 10.1080/14697688.2010.494611

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