Speaker : Dr. Yong-Ki Ma (Kongju National University)
Title : Modeling the dependency structure of CDS rates
Time : 2014-08-05 (Tue) 14:00 - 15:00
Place : Lecture Hall, Inst. of Mathematics
Abstract: In this talk, we focus on the dependency structure between the default intensities of credit default swap (CDS) rates. We first study the problem of default correlation arising in the pricing of CDS rates, because, in the worst case, the reference entity and the protection seller can default simultaneously. To model this, we consider the dependent shot noise intensities within the Cox processes using the Farlie-Gumbel-Morgenstern copula with exponential marginal distributions. We obtain a generalized CDS rates formula based on the calculation of the joint Laplace transforms of the intergated intensities. We also determine the functional behavior of CDS rates in terms of the relevant parameters. We find that the CDS rate has a diverse dependency structure from a financial economic point of view, depending on the chosen parameters.