Counterparty risk for credit default swaps : Markov chain interacting intensities model with stochastic intensity

@inproceedings{LeungCounterpartyRF,
  title={Counterparty risk for credit default swaps : Markov chain interacting intensities model with stochastic intensity},
  author={Kwai Sun Leung and Yue Kuen Kwok}
}
We analyze the counterparty risk for credit default swaps using the Markov chain model of portfolio credit risk of multiple obligors with interacting default intensity processes. The default correlation between the protection seller and underlying entity is modeled by an increment in default intensity upon the occurrence of an external shock event. The arrival of the shock event is a Cox process whose stochastic intensity is assumed to follow an affine diffusion process with jumps. We examine… CONTINUE READING

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