Abstract
AbstractWith the increased financial market volatility, corporate defaults will suffer from the double impact of the external shocks and internal contagion effects. In the existing stochastic default intensity models, the valuation of sensitivity parameters requires a lot of historical data, however, the limited market data does not guarantee the accuracy of parameter estimation, meanwhile, due to the people have a lot of fuzziness and hesitation judgements on the default process, it is necessary for us to let the corresponding random parameter of the default intensity to be a triangular intuitionistic fuzzy interval value. In this paper, we propose a new default intensity model based on the external shocks and internal contagion effects, and introduce the triangular intuitionistic fuzzy numbers into the credit default swaps (CDS) pricing modeling to describe the fuzziness and hesitation of the default process. In the end, we get a new fuzzy form pricing formula for CDS, and by the simulation analysis, we...
Highlights
In the U.S subprime crisis, the collapse of major financial institutions such as Bell Sten and Lehman, aroused people's common concern, because a large number of counterparty suffered huge losses, lead to the counterparty credit default management has become a hot spot in the theory
Liang Wu et al / Default with Fuzziness and Hesitation the default contagion effect into the default intensity of survival companies, that is, when a company is in default, the default intensity of other survival companies will have an upward jump, this is the intuitive parameterization of counterparty risk, the related researches can be see in literatures 3,4
The remainder of this paper are as follows: In second section, we review some of the basic concept of triangular intuitionistic fuzzy numbers; in third section, we propose a new default intensity model based on the external shocks and internal contagion effects, further more, we introduce the fuzziness and hesitation for the credit default swaps (CDS) pricing; in fourth section, we conduct a simulation analysis for the proposed model; we make a summary and end the discussion in this paper
Summary
Department of mathematics, Henan Institute of Science and Technology, XinXiang,453003, Henan, P R China Ya-ming Zhuang School of Economics and Management, Southeast University, Nanjing,211189, Jiangsu, P R China Wen Li School of Economics and Management, Southeast University, Received 17 September 2015 Accepted 25 January 2016
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