Model for Dependent Default With Hyperbolic Attenuation Effect and the Valuation of CDS

BAI Yun-fen; HU Xin-hua; YE Zhong-xing

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BAI Yun-fen, HU Xin-hua, YE Zhong-xing. Model for Dependent Default With Hyperbolic Attenuation Effect and the Valuation of CDS[J]. Applied Mathematics and Mechanics, 2007, 28(12): 1468-1474.

Citation:

BAI Yun-fen, HU Xin-hua, YE Zhong-xing. Model for Dependent Default With Hyperbolic Attenuation Effect and the Valuation of CDS[J]. Applied Mathematics and Mechanics, 2007, 28(12): 1468-1474.

Citation:

BAI Yun-fen, HU Xin-hua, YE Zhong-xing. Model for Dependent Default With Hyperbolic Attenuation Effect and the Valuation of CDS[J]. Applied Mathematics and Mechanics, 2007, 28(12): 1468-1474.

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Model for Dependent Default With Hyperbolic Attenuation Effect and the Valuation of CDS

1.
Department of Mathmatics, Shanghai Jiaotong Univeristy, Shanghai 200240, P. R. China;

Received Date: 2007-01-30
Rev Recd Date: 2007-11-09
Publish Date: 2007-12-15

Abstract

Abstract

A hyperbolic attenuation function was introduced to reflect the effect of one firm's default to its partner. If the two firms are competitors (copartners), the default intensity of one firm will decrease (increase) abruptly when the other firm defaults. As time goes on, the impact will decrease gradually until extinction. In this model, the joint distribution and marginal distributions of default times are derived by employing the change of measure, so the fair swap premium of a CDS can be valued.
- dependent default,
- hyperbolic attenuation function,
- change of measure,
- credit default swap(CDS)

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References(11)

References

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