Density approach in modelling successive defaults

Nicole El Karoui (1) , Monique Jeanblanc (2) , Ying Jiao (3)

1 LPMA - Laboratoire de Probabilités et Modèles Aléatoires
2 LAP - Laboratoire Analyse et Probabilités
3 SAF - Laboratoire de Sciences Actuarielle et Financière

We apply the default density framework developed in El Karoui et al. \cite{ejj1} to modelling of multiple defaults, which can be adapted to both top-down and bottom-up models. We present general pricing results and establish links with the classical intensity approach. Explicit models are also proposed by using the methods of change of probability measure or dynamic copula.

Domaines: Probabilités [math.PR]; Gestion des risques [q-fin.RM]; Economies et finances

Nicole El Karoui, Monique Jeanblanc, Ying Jiao. Density approach in modelling successive defaults. SIAM Journal on Financial Mathematics, 2015, 6 (1), pp.1-21. ⟨hal-00870492⟩