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The Intensity Model for Pricing Credit Securities with Jump Diffusion and Counterparty Risk

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  • Ruili Hao
  • Zhongxing Ye

Abstract

We present an intensity-based model with counterparty risk. We assume the default intensity of firm depends on the stochastic interest rate driven by the jump-diffusion process and the default states of counterparty firms. Furthermore, we make use of the techniques in Park (2008) to compute the conditional distribution of default times and derive the explicit prices of bond and CDS. These are extensions of the models in Jarrow and Yu (2001).

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  • Ruili Hao & Zhongxing Ye, 2011. "The Intensity Model for Pricing Credit Securities with Jump Diffusion and Counterparty Risk," Mathematical Problems in Engineering, Hindawi, vol. 2011, pages 1-16, April.
    • Handle: RePEc:hin:jnlmpe:412565
    DOI: 10.1155/2011/412565
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