Credit derivatives pricing with default density term structure modelled by Lévy random fields

Details Credit derivatives pricing with default density term structure modelled by Lévy random fields Credit derivatives pricing with default density term structure modelled by Lévy random fields

2011-12-13

arxiv.org/abs/1112.2952v1

Economy

Quantitative Finance

Pricing of Securities

Scientific paper

We model the term structure of the forward default intensity and the default density by using L\'evy random fields, which allow us to consider the credit derivatives with an after-default recovery payment. As applications, we study the pricing of a defaultable bond and represent the pricing kernel as the unique solution of a parabolic integro-differential equation. Finally, we illustrate by numerical examples the impact of the contagious jump risks on the defaultable bond price in our model.

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