Multiple defaults and contagion risks
Portfolio Management
2009-12-17 v1 Probability
Abstract
We study multiple defaults where the global market information is modelled as progressive enlargement of filtrations. We shall provide a general pricing formula by establishing a relationship between the enlarged filtration and the reference default-free filtration in the random measure framework. On each default scenario, the formula can be interpreted as a Radon-Nikodym derivative of random measures. The contagion risks are studied in the multi-defaults setting where we consider the optimal investment problem in a contagion risk model and show that the optimization can be effectuated in a recursive manner with respect to the default-free filtration.
Cite
@article{arxiv.0912.3132,
title = {Multiple defaults and contagion risks},
author = {Ying Jiao},
journal= {arXiv preprint arXiv:0912.3132},
year = {2009}
}