A factor contagion model for portfolio credit derivatives

Geon Ho Choe, Hyun Jin Jang and Soon Won Kwon

Quantitative Finance, 2015, vol. 15, issue 9, 1571-1582

Abstract: We propose a factor contagion model with the Marshall-Olkin copula for correlated default times and develop an analytic approach for finding the th default time distribution based on our model. We combine a factor copula model with a contagion model under the assumption that the individual default intensities follow contagion processes, and that the default times have a dependence structure with the Marshall-Olkin copula. Then, we derive an analytic formula for the th default time distribution and apply it to compute the price of portfolio credit derivatives, such as th-to-default swaps and single-tranche CDOs. To test efficiency and accuracy of our formula, we compare the theoretical prediction with existing methods.

Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://hdl.handle.net/10.1080/14697688.2014.976651 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:quantf:v:15:y:2015:i:9:p:1571-1582

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RQUF20

DOI: 10.1080/14697688.2014.976651

Access Statistics for this article

Quantitative Finance is currently edited by Michael Dempster and Jim Gatheral

More articles in Quantitative Finance from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().