Credit derivatives pricing with default density term structure modelled by L\'evy random fields

Lijun Bo, Ying Jiao and Xuewei Yang ()
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Ying Jiao: LPMA

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Abstract: We model the term structure of the forward default intensity and the default density by using L\'evy random fields, which allow us to consider the credit derivatives with an after-default recovery payment. As applications, we study the pricing of a defaultable bond and represent the pricing kernel as the unique solution of a parabolic integro-differential equation. Finally, we illustrate by numerical examples the impact of the contagious jump risks on the defaultable bond price in our model.

Date: 2011-12
New Economics Papers: this item is included in nep-ban
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