The intensity model for pricing credit securities with jump diffusion and counterparty risk (Q541467): Difference between revisions

Summary: 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 of \textit{H. S. Park} [The survival probability of mortality intensity with jump-diffusion, J. Korean Stat. Soc. 37, No. 4, 355--363 (2008; \url{doi:10.1016/j.jkss.2008.06.001})] 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).