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| Credit Contagion and Risk Management with Multiple Non-ordered Defaults by Younes Kchia of the Centre de Mathématiques Appliquées, and June 8, 2011 Abstract: The classical reduced-form and ltration expansion framework in credit risk is extended to the case of multiple, non-ordered defaults, assuming that conditional densities of the default times exist. Intensities and pricing formulas are derived, revealing how information-driven default contagion arises in these models. We then analyze the impact of ordering the default times before expanding the ltration. While not important for pricing, the e ect is signi cant in the context of risk management, and becomes even more pronounced for highly correlated and asymmetrically distributed defaults. Finally, we provide a general scheme for constructing and simulating the default times, given that a model for the conditional densities has been chosen. Books Referenced in this paper: (what is this?)
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