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 |
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All Science Journal Classification (ASJC) codes
- Statistical and Nonlinear Physics
- Mathematics(all)
- Physics and Astronomy(all)
- Applied Mathematics
Cite this
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Joint survival probability via truncated invariant copula. / Kim, Jeong Hoon; Ma, Yong Ki; Park, Chan Yeol.
In: Chaos, Solitons and Fractals, Vol. 85, 04.2016, p. 68-76.Research output: Contribution to journal › Article
TY - JOUR
T1 - Joint survival probability via truncated invariant copula
AU - Kim, Jeong Hoon
AU - Ma, Yong Ki
AU - Park, Chan Yeol
PY - 2016/4
Y1 - 2016/4
N2 - 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.
AB - 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.
UR - http://www.scopus.com/inward/record.url?scp=84957809543&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=84957809543&partnerID=8YFLogxK
U2 - 10.1016/j.chaos.2016.01.012
DO - 10.1016/j.chaos.2016.01.012
M3 - Article
AN - SCOPUS:84957809543
VL - 85
SP - 68
EP - 76
JO - Chaos, Solitons and Fractals
JF - Chaos, Solitons and Fractals
SN - 0960-0779
ER -