Credit risk is quantified by the loss distribution due to unexpected changes in the credit quality of the counterparty in a financial contract. Default correlation risk refers to the risk that a bundle of risky obligors may default together. To understand the clustering phenomena in correlated defaults, we consider credit contagion models which describe the propagation of financial distress fro...

Using the reduced form framework with inter-dependent default correlation, we perform valuation of credit default swap with counterparty risk. The inter-dependent default risk structure between the protection buyer, protection seller and the reference entity in a credit default swap are characterized by their correlated default intensities, where the default intensity of one party increases whe...

We present an intensity-based model with counterparty risk. We assume the default intensity of firm depends on the stochastic interest rate driven by the jump-diffusion process and the default states of counterparty firms. Furthermore, we make use of the techniques in Park 2008 to compute the conditional distribution of default times and derive the explicit prices of bond and CDS. These are ext...

We study the pricing of defaultable derivatives, such as bonds, bond options, and credit default swaps in the reduced form framework of intensity-based models. We use regular and singular perturbation expansions on the intensity of default from which we derive approximations for the pricing functions of these derivatives. In particular, we assume an Ornstein-Uhlenbeck process for the interest r...

W develop a model for pricing securities whose value may depend simultaneously on equity, interestrate, and default risks. The framework may also be used to extract probabilities of default (PD) functions from market data. Our approach is entirely based on observables such as equity prices and interest rates, rather than on unobservable processes such as firm value. The model stitches together ...

The present paper aimed at studying the current models of credit portfolio management. There are currently three types of models which consider the risk of credit portfolio: the structural models (Moody's KMV model, and Credit- Metrics model), the intensity models (the actuarial models) and the econometric models (the Macro-factors model). The development of these three types of models is based...