Title

A note on the calculation of default probabilities in "Structural credit risk modeling with Hawkes jump-diffusion processes"

RIS ID

143699

Publication Details

Pasricha, P., Lu, X. & Zhu, S. (2020). A note on the calculation of default probabilities in "Structural credit risk modeling with Hawkes jump-diffusion processes". Journal of Computational and Applied Mathematics, 381

Abstract

2020 Elsevier B.V. Ma and Xu (2016) proposed a Hawkes jump-diffusion model for the firm's value to describe the unexpectedness of default and default clustering in the framework of Merton's structural default. However, the authors resorted to Monte-Carlo simulations for the calculation of the default probability and the default correlation, as no other solution method was available in the literature. In this note, we present a closed-form solution for the probability of default and the default correlation using the characteristic function. Our new solution can substantially improve the computational efficiency for the problem.

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Link to publisher version (DOI)

http://dx.doi.org/10.1016/j.cam.2020.113037