Dependent defaults and credit migrations
Volume 30 / 2003
Applicationes Mathematicae 30 (2003), 121-145
MSC: 60J27, 91B70.
DOI: 10.4064/am30-2-1
Abstract
The paper deals with the modelling of mutually dependent default times of several credit names through the intensity-based approach. We extend to the case of multiple ratings some previous results due to Schmidt (1998), Kusuoka (1999) and Jarrow and Yu (2001). The issue of the arbitrage valuation of simple basket credit derivatives is also briefly examined. We argue that our approach leads, in some cases, to a significant reduction of the dimensionality of the valuation problem at hand.
