A generalised CIR process with externally-exciting and self-exciting jumps and its applications in insurance and finance

Angelos Dassios, Jiwook Jang and Hongbiao Zhao

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: In this paper, we study a generalised CIR process with externally-exciting and self-exciting jumps, and focus on the distributional properties and applications of this process and its aggregated process. The aim of the paper is to introduce a more general process that includes many models in the literature with self-exciting and external-exciting jumps. The first and second moments of this jump-diffusion process are used to calculate the insurance premium based on mean-variance principle. The Laplace transform of aggregated process is derived, and this leads to an application for pricing default-free bonds which could capture the impacts of both exogenous and endogenous shocks. Illustrative numerical examples and comparisons with other models are also provided.

Keywords: contagion risk; insurance premium; aggregate claims; default-free bond pricing; self-exciting process; Hawkes process; CIR process (search for similar items in EconPapers)
JEL-codes: C02 G13 G22 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2019-12-01
New Economics Papers: this item is included in nep-ias, nep-ore and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published in Risks, 1, December, 2019, 7(4). ISSN: 2227-9091

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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:102043

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