The dependence of assets and default threshold with thinning-dependence structure

Yinghui Dong; Guojing Wang

doi:10.3934/jimo.2012.8.391

Article Contents

2012, Volume 8, Issue 2: 391-410. Doi: 10.3934/jimo.2012.8.391

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The dependence of assets and default threshold with thinning-dependence structure

Yinghui Dong^1, and
Guojing Wang^1,

1.
Department of Mathematics and Center for Financial Engineering, Soochow University, Suzhou 215006

Received: September 30, 2010

Revised: September 30, 2011

Published: March 2012

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Abstract

In this paper, we model the value of a firm and a default threshold using two dependent jump-diffusion processes. We give the explicit solutions for the Laplace transform of the first passage time and the expected discounted ratio of the firm value to the default threshold at default, and show the impact of dependent jumps of the firm value and the default threshold on the default probabilities and the spreads of corporate defaultable bonds.

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Mathematics Subject Classification: Primary: 49K15, 44A10; Secondary: 47D07.

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