IDEAS home Printed from https://ideas.repec.org/a/hin/jnlmpe/5369879.html
   My bibliography  Save this article

Basket Credit Derivative Pricing in a Markov Chain Model with Interacting Intensities

Author

Listed:
  • Kangquan Zhi
  • Jie Guo
  • Xiaosong Qian

Abstract

In this paper, we propose a Markov chain model to price basket credit default swap (BCDS) and basket credit-linked note (BCLN) with counterparty and contagion risks. Suppose that the default intensity processes of reference entities and the counterparty are driven by a common external shock as well as defaults of other names in the contracts. The stochastic intensity of the external shock is a Cox process with jumps. We derive recursive formulas for the joint distribution of default times and obtain closed-form premium rates for BCDS and BCLN. Numerical experiments are performed to show how the correlated default risks may affect the premium rates.

Suggested Citation

  • Kangquan Zhi & Jie Guo & Xiaosong Qian, 2020. "Basket Credit Derivative Pricing in a Markov Chain Model with Interacting Intensities," Mathematical Problems in Engineering, Hindawi, vol. 2020, pages 1-17, October.
    • Handle: RePEc:hin:jnlmpe:5369879
    DOI: 10.1155/2020/5369879
    as

    Download full text from publisher

    File URL: http://downloads.hindawi.com/journals/MPE/2020/5369879.pdf
    Download Restriction: no
    File URL: http://downloads.hindawi.com/journals/MPE/2020/5369879.xml
    Download Restriction: no
    File URL: https://libkey.io/10.1155/2020/5369879?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hin:jnlmpe:5369879. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Mohamed Abdelhakeem (email available below). General contact details of provider: https://www.hindawi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.