Pricing Mitigation and Contagion Effect of Guaranteed Debt in Interacting Intensity Model

This paper establish a framework for analysis of mitigation and contagion effect of guaranteed debt. Contagion is modeled by interacting intensities. Analytical solutions are given through the approach of CGH survival measure. A term Conditional Odds Ratio is defined to set up a criterion for gauging the difference between mitigation effect and contagion risk in a pair of guaranteed debt. Numerical analysis shows an almost surely dominance of mitigation value to contagion risk within a pair of guaranteed firms.