An analytically tractable time-changed jump-diffusion default intensity model

We present a stochastic default intensity model where the intensity follows a tractable jump-diffusion process obtained by applying a deterministic change of time to a non mean-reverting square root jump-diffusion process. The model generates higher implied volatilities for default swaptions than mean-reverting versions, consistent with volatility levels observed on the market.

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Year of publication:	2008-10
Authors:	El-Bachir, Naoufel ; Brigo, Damiano
Institutions:	Henley Business School, University of Reading
Subject:	Credit derivatives \| Credit Default Swap \| Credit Default Swaption \| Jump-diffusion \| Stochastic intensity \| Doubly stochastic poisson process \| Cox process \| Semi-Analytical formula \| Time change

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Extent:	application/pdf
Series:	ICMA Centre Discussion Papers in Finance.
Type of publication:	Book / Working Paper
Notes:	Number icma-dp2008-06 16 pages
Classification:	C15 - Statistical Simulation Methods; Monte Carlo Methods ; C63 - Computational Techniques ; C65 - Miscellaneous Mathematical Tools ; G12 - Asset Pricing ; G13 - Contingent Pricing; Futures Pricing
Source:	RePEc - Research Papers in Economics

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