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Article: Correlated default models driven by a multivariate regime-switching shot noise process

TitleCorrelated default models driven by a multivariate regime-switching shot noise process
Authors
Issue Date2018
PublisherOxford University Press. The Journal's web site is located at http://imaman.oxfordjournals.org/
Citation
IMA Journal of Management Mathematics, 2018, v. 29 n. 4, p. 351-375 How to Cite?
AbstractWe develop a reduced-form credit risk model with regime-switching intensities to investigate the pricing of a credit default swap (CDS) contract. We assume that the defaults of all the names are driven by some shock events. The arrivals of the shock events and the interest rate are modelled by a multivariate regime-switching shot noise process. We provide the flexibility that the model parameters, including the intensities and the jump sizes of the jump component, can switch over time according to a continuous-time, finite-state Markov chain. The states of the chain may be interpreted as different states of an economy or different stages of a business cycle. Based on the joint Laplace transform of the regime-switching shot noise processes, we derive the explicit formulas for the spreads of CDS contract with and without counterparty risk. Numerical results illustrate changes of market regimes have a significant effect on the spread.
Persistent Identifierhttp://hdl.handle.net/10722/249694
ISSN
2019 Impact Factor: 1.529
2015 SCImago Journal Rankings: 0.351
ISI Accession Number ID

 

DC FieldValueLanguage
dc.contributor.authorDong, Y-
dc.contributor.authorWang, G-
dc.contributor.authorYuen, KC-
dc.date.accessioned2017-11-21T03:05:42Z-
dc.date.available2017-11-21T03:05:42Z-
dc.date.issued2018-
dc.identifier.citationIMA Journal of Management Mathematics, 2018, v. 29 n. 4, p. 351-375-
dc.identifier.issn1471-678X-
dc.identifier.urihttp://hdl.handle.net/10722/249694-
dc.description.abstractWe develop a reduced-form credit risk model with regime-switching intensities to investigate the pricing of a credit default swap (CDS) contract. We assume that the defaults of all the names are driven by some shock events. The arrivals of the shock events and the interest rate are modelled by a multivariate regime-switching shot noise process. We provide the flexibility that the model parameters, including the intensities and the jump sizes of the jump component, can switch over time according to a continuous-time, finite-state Markov chain. The states of the chain may be interpreted as different states of an economy or different stages of a business cycle. Based on the joint Laplace transform of the regime-switching shot noise processes, we derive the explicit formulas for the spreads of CDS contract with and without counterparty risk. Numerical results illustrate changes of market regimes have a significant effect on the spread.-
dc.languageeng-
dc.publisherOxford University Press. The Journal's web site is located at http://imaman.oxfordjournals.org/-
dc.relation.ispartofIMA Journal of Management Mathematics-
dc.rightsPre-print: Journal Title] ©: [year] [owner as specified on the article] Published by Oxford University Press [on behalf of xxxxxx]. All rights reserved. Pre-print (Once an article is published, preprint notice should be amended to): This is an electronic version of an article published in [include the complete citation information for the final version of the Article as published in the print edition of the Journal.] Post-print: This is a pre-copy-editing, author-produced PDF of an article accepted for publication in [insert journal title] following peer review. The definitive publisher-authenticated version [insert complete citation information here] is available online at: xxxxxxx [insert URL that the author will receive upon publication here].-
dc.titleCorrelated default models driven by a multivariate regime-switching shot noise process-
dc.typeArticle-
dc.identifier.emailYuen, KC: kcyuen@hku.hk-
dc.identifier.authorityYuen, KC=rp00836-
dc.description.naturelink_to_subscribed_fulltext-
dc.identifier.doi10.1093/imaman/dpx004-
dc.identifier.hkuros283125-
dc.identifier.volume29-
dc.identifier.issue4-
dc.identifier.spage351-
dc.identifier.epage375-
dc.identifier.isiWOS:000455282700001-
dc.publisher.placeUnited Kingdom-
dc.identifier.issnl1471-678X-

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