Abstract
In this paper, we mainly discuss the pricing of credit default swap (CDS) in intensity-based models with counterparty risk. The default intensity of firm depends on the stochastic interest rate driven by the jump-diffusion process and the default states of counterparty firms. Moreover, we apply the hyperbolic function to illustrate the attenuation effect of correlated defaults between counterparties. Our models are extensions of the models in Jarrow and Yu (2001) and Bai, Hu and Ye (2007). In the model, we make use of the techniques in Park (2008) to obtain some important results and derive the explicit prices of bond and CDS in the primary-secondary and looping default frameworks respectively.
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© 2011 Springer-Verlag Berlin Heidelberg
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Hao, R., Ye, Z. (2011). Pricing CDS with Jump-Diffusion Risk in the Intensity-Based Model. In: Li, S., Wang, X., Okazaki, Y., Kawabe, J., Murofushi, T., Guan, L. (eds) Nonlinear Mathematics for Uncertainty and its Applications. Advances in Intelligent and Soft Computing, vol 100. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-22833-9_26
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DOI: https://doi.org/10.1007/978-3-642-22833-9_26
Publisher Name: Springer, Berlin, Heidelberg
Print ISBN: 978-3-642-22832-2
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