On reduced-form intensity-based model with 'trigger' events

Jia Wen Gu, Wai Ki Ching*, Tak Kuen Siu, Harry Zheng

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

3 Citations (Scopus)


Corporate defaults may be triggered by some major market news or events such as financial crises or collapses of major banks or financial institutions. With a view to develop a more realistic model for credit risk analysis, we introduce a new type of reduced-form intensity-based model that can incorporate the impacts of both observable 'trigger' events and economic environment on corporate defaults. The key idea of the model is to augment a Cox process with 'trigger' events. Both single-default and multiple-default cases are considered in this paper. In the former case, a simple expression for the distribution of the default time is obtained. Applications of the proposed model to price defaultable bonds and multi-name Credit Default Swaps are provided.

Original languageEnglish
Pages (from-to)331-339
Number of pages9
JournalJournal of the Operational Research Society
Issue number3
Publication statusPublished - Mar 2014


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