Abstract
Given an intensity-based credit risk model, this paper studies dependence structure between default intensities. To model this structure, we use a multivariate shot noise intensity process, where jumps occur simultaneously and their sizes are correlated. Through very lengthy algebra, we obtain explicitly the joint survival probability of the integrated intensities by using the truncated invariant Farlie-Gumbel-Morgenstern copula with exponential marginal distributions. We also apply our theoretical result to pricing basket default swap spreads. This result can provide a useful guide for credit risk management.
| Original language | English |
|---|---|
| Pages (from-to) | 68-76 |
| Number of pages | 9 |
| Journal | Chaos, Solitons and Fractals |
| Volume | 85 |
| DOIs | |
| Publication status | Published - 2016 Apr |
All Science Journal Classification (ASJC) codes
- Statistical and Nonlinear Physics
- Mathematics(all)
- Physics and Astronomy(all)
- Applied Mathematics
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Kim, J. H., Ma, Y. K., & Park, C. Y. (2016). Joint survival probability via truncated invariant copula. Chaos, Solitons and Fractals, 85, 68-76. https://doi.org/10.1016/j.chaos.2016.01.012