Please use this identifier to cite or link to this item:
|Title:||Jumps in Intensity Models: Investigating the Performance of Ornstein-Uhlenbeck Processes in Credit Risk Modeling|
|Authors:||CARIBONI Jessica; SCHOUTENS Wim|
|Citation:||METRIKA vol. 69 no. 2-3 p. 173-198|
|Type:||Articles in Journals|
|Abstract:||This work presents intensity-based credit risk models where the default intensity of the point process is modeled by an Ornstein-Uhlenbeck type process completely driven by jumps. Under this model we compute the default probability over time by linking it to the characteristic function of the integrated intensity process. In case of the Gamma and the Inverse Gaussian Ornstein-Uhlenbeck processes this leads to a closed-form expression for the default probability and to a straightforward estimate of credit default swaps prices. The model is calibrated to a series of real-market term structures and then used to price a digital default put option. Results are compared with the well known cases of Poisson and CIR dynamics. Possible extensions of the model to the multivariate setting are finally discussed.|
|JRC Institute:||Institute for the Protection and Security of the Citizen|
Files in This Item:
There are no files associated with this item.
Items in repository are protected by copyright, with all rights reserved, unless otherwise indicated.