Credit migration: Generating generators
Risk Management
2021-02-05 v2 Computational Finance
Mathematical Finance
Pricing of Securities
Abstract
Markovian credit migration models are a reasonably standard tool nowadays, but there are fundamental difficulties with calibrating them. We show how these are resolved using a simplified form of matrix generator and explain why risk-neutral calibration cannot be done without volatility information. We also show how to use elementary ideas from differential geometry to make general inferences about calibration stability. This the longer version of an article published by RISK (Feb 2021).
Keywords
Cite
@article{arxiv.2006.11146,
title = {Credit migration: Generating generators},
author = {Richard J. Martin},
journal= {arXiv preprint arXiv:2006.11146},
year = {2021}
}
Comments
Minor corrections from V1