Corporate bond pricing with jump diffusion default intensity

Siti Mohd-Ramli

Research output: Contribution to journalMeeting abstract

Abstract

Purpose: To provide a bond pricing framework that allows for dependency between the interest rate and default intensity processes which are assumed to follow mean-reverting jump diffusion processes. Approach: The time to default is modelled according to a Cox process whose intensity follows a mean reverting jump diffusion process. We also assume that a bond issuer’s default intensity is correlated to the short rate process where a copula function, a parametrically specified joint distribution generated from marginal distributions, is utilized to address the issue of correlated jumps to capture the dependence structure between two processes. The copula families considered are a Farlie-Gumbel-Mogenstern copula, a Gumbel copula and t-copula. Research implications: Corporate bond pricing model and its calibration.
Original languageEnglish
Pages (from-to)69
Number of pages1
JournalExpo 2011 Higher Degree Research : book of abstracts
Publication statusPublished - 2011
Externally publishedYes
EventHigher Degree Research Expo (7th : 2011) - Sydney
Duration: 10 Oct 201111 Oct 2011

Keywords

  • jump diffusion processes
  • a Cox process
  • dependency between the interest rate and default intensity
  • copulas
  • corporate bond pricing

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