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| Author: | Kraft, H. Steffensen, M. |
| Title: | Bankruptcy, counterparty risk, and contagion |
| Journal: | Review of finance
2007 : JUN, VOL. 11:2, p. 209-252 |
| Index terms: | finance credit risk pricing models |
| Freeterms: | Markov processes contagion |
| Language: | eng |
| Abstract: | A unifying framework is provided for the modeling of various types of credit risks such as contagion effects. It is argued that Markov chains can efficiently be used to tackle the problems. Pricing formulas are derived for three building blocks that are generalizations of contingent claims studied by Lando (1998). In addition, it is shown that, in general, all contingent claims exposed to credit risk satisfy a system of partial differential equations. |
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