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Credit derivatives pricing with default density term structure modelled by Lévy random fields

By Lijun Bo, Ying Jiao and Xuewei Yang


We model the term structure of the forward default intensity and the default density by using Lévy 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

Topics: [ QFIN.PR ] Quantitative Finance [q-fin]/Pricing of Securities [q-fin.PR]
Publisher: HAL CCSD
Year: 2011
OAI identifier: oai:HAL:hal-00651397v1
Provided by: Hal-Diderot

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