Jump-diffusion CIR model and its applications in credit risk

Authors : Yongfeng WU

Pages : 1095-1106

View : 15 | Download : 6

Publication Date : 2014-12-01

Article Type : Research Paper

Abstract :In this paper, the author discusses the distribution of the jump-diffusion CIR model insert ignore into journalissuearticles values(JCIR); and its applications in credit risk. Applying the piecewise deterministic Markov process theory and martingale theory, we first obtain the closed forms of the Laplace transforms for the distribution of the jump-diffusion CIR model and its integrated process. Based on the obtained Laplace transforms, we derive the pricing of the defaultable zero-coupon bond and the fair premium of a Credit Default Swap insert ignore into journalissuearticles values(CDS); in a reduced form model of credit risk. Some numerical calculations are also provided. 
Keywords : jump diffusion CIR model, reduced form model of credit risk, Laplace transform, defaultable zero coupon bond, Credit Default Swap