It is well-known from the work of Sch ̈onbucher (2005) that the marginal laws of a loss process can be matched by a unit increasing time inhomogeneous Markov process, whose deterministic jump intensity is called local intensity. The Stochastic Local Intensity (SLI) models such as the one...

It is well-known from the work of Sch ̈onbucher (2005) that the marginal laws of a loss process can be matched by a unit increasing time inhomogeneous Markov process, whose deterministic jump intensity is called local intensity. The Stochastic Local Intensity (SLI) models such as the one...

Through a long-period analysis of the inter-temporal relations between the French markets for credit default swaps (CDS), shares and bonds between 2001 and 2008, this article shows how a financial innovation like CDS could heighten financial instability. After describing the operating principles...