This paper studies the effect of introducing stochastic volatility in the first-passage structural approach to default risk. The impact of volatility time scales on the yield spread curve is analyzed. In particular it is shown that the presence of a short time scale in the volatility raises the...

The pricing of collateralized debt obligations (CDOs) and other basket credit derivatives is contingent upon (i) a realistic modelling of the firms' default times and the correlation between them, and (ii) efficient computational methods for computing the portfolio loss distribution from the...

In this paper consistency problems for multi-factor jump-diffusion models, where the jump parts follow multivariate point processes are examined. First the gap between jump-diffusion models and generalized Heath-Jarrow-Morton (HJM) models is bridged. By applying the drift condition for a...

We develop two parsimonious models for pricing multi-name credit derivatives. We derive closed form expression for the loss distribution, which then can be used in determining the prices of tranche and index swaps and more exotic derivatives on these contracts. Our starting point is the model of...