Multiple defaults and contagion risks

Ying Jiao
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Ying Jiao: PMA

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Abstract: We study multiple defaults where the global market information is modelled as progressive enlargement of filtrations. We shall provide a general pricing formula by establishing a relationship between the enlarged filtration and the reference default-free filtration in the random measure framework. On each default scenario, the formula can be interpreted as a Radon-Nikodym derivative of random measures. The contagion risks are studied in the multi-defaults setting where we consider the optimal investment problem in a contagion risk model and show that the optimization can be effectuated in a recursive manner with respect to the default-free filtration.

Date: 2009-12
New Economics Papers: this item is included in nep-ban and nep-rmg
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