Liang Xue, Wang Guojing. A Reduced Model with Thinning-Dependence Structure[J]. Chinese Journal of Applied Probability and Statistics, 2012, 28(6): 655-664.
Citation: Liang Xue, Wang Guojing. A Reduced Model with Thinning-Dependence Structure[J]. Chinese Journal of Applied Probability and Statistics, 2012, 28(6): 655-664.

A Reduced Model with Thinning-Dependence Structure

  • The class of reduced form models is a very important class of credit risk models, and the modelling of the default dependence structure is essential in the reduced form models. This paper models dependent defaults under a thinning-dependent structure in the reduced form framework. In our tractable model, the joint survival probability for correlated defaults can be derived, and hence the CDS premium rates (with or without counterparty risk) are given in closed form. The numerical result shows that the thinning-dependent structure is effective to model the default dependence.
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