Study of Credit Risk with Stochastic Default Intensity Based on Markov Chain

Under the condition of stochastic default intensity, correlation of default intensity and default-free interest rate, the paper constructed the term structure model of credit risk. A Markov chain based method is proposed for analyzing the credit risk. Based on reliability interference theory, we get the indexes such as the default probability, the mean time to the first default, steady probability vector of the credit rating and so on. By introducing the model series system in reliability into the studies of credit risk, the paper constructed a portfolio model with several bonds, and got the solution. The results from this study are of value in credit risk management. They can be used in evaluating and measuring the performance of credit risk and can provide significant help and guidance.