Related papers: General dynamic term structures under default risk

The two main approaches in credit risk are the structural approach pioneered in Merton (1974) and the reduced-form framework proposed in Jarrow & Turnbull (1995) and in Artzner & Delbaen (1995). The goal of this article is to provide a…

We consider a market with a term structure of credit risky bonds in the single-name case. We aim at minimal assumptions extending existing results in this direction: first, the random field of forward rates is driven by a general…

In this paper, we study term structure movements in the spirit of Heath, Jarrow, and Morton [Econometrica 60(1), 77-105] under volatility uncertainty. We model the instantaneous forward rate as a diffusion process driven by a G-Brownian…

We model the term structure of the forward default intensity and the default density by using L\'evy random fields, which allow us to consider the credit derivatives with an after-default recovery payment. As applications, we study the…

This paper considers general term structure models like the ones appearing in portfolio credit risk modelling or life insurance. We give a general model starting from families of forward rates driven by infinitely many Brownian motions and…

We introduce the concept of no-arbitrage in a credit risk market under ambiguity considering an intensity-based framework. We assume the default intensity is not exactly known but lies between an upper and lower bound. By means of the…

While defaults are rare events, losses can be substantial even for credit portfolios with a large number of contracts. Therefore, not only a good evaluation of the probability of default is crucial, but also the severity of losses needs to…

A market with defaultable bonds where the bond dynamics is in a Heath-Jarrow-Morton setting and the forward rates are driven by an infinite number of Levy factors is considered. The setting includes rating migrations driven by a Markov…

In this paper, we deal with an axiomatic approach to default risk. We introduce the notion of a default risk measure, which generalizes the classical probability of default (PD), and allows to incorporate model risk in various forms. We…

We consider an approach to credit risk in which the information about the time of bankruptcy is modelled using a Brownian bridge that starts at zero and is conditioned to equal zero when the default occurs. This raises the question whether…

According to theoretical models of valuing risky corporate securities, risk of default is primary component in overall yield spread. However, sizable empirical literature considers it otherwise by giving more importance to non-default risk…

We consider a generalization of the Heath Jarrow Morton model for the term structure of interest rates where the forward rate is driven by Paretian fluctuations. We derive a generalization of It\^{o}'s lemma for the calculation of a…

We investigate the impact of available information on the estimation of the default probability within a generalized structural model for credit risk. The traditional structural model where default is triggered when the value of the firm's…

We propose a model for the credit markets in which the random default times of bonds are assumed to be given as functions of one or more independent "market factors". Market participants are assumed to have partial information about each of…

This paper offers a new class of models of the term structure of interest rates. We allow each instantaneous forward rate to be driven by a different stochastic shock, constrained in such a way as to keep the forward rate curve continuous.…

The current research on credit risk is primarily focused on modeling default probabilities. Recovery rates are often treated as an afterthought; they are modeled independently, in many cases they are even assumed constant. This is despite…

The intensity of a default time is obtained by assuming that the default indicator process has an absolutely continuous compensator. Here we drop the assumption of absolute continuity with respect to the Lebesgue measure and only assume…

In the aftermath of the global financial crisis, much attention has been paid to investigating the appropriateness of the current practice of default risk modeling in banking, finance and insurance industries. A recent empirical study by…

This paper introduces a novel stochastic model for credit spreads. The stochastic approach leverages the diffusion of default intensities via a CIR++ model and is formulated within a risk-neutral probability space. Our research primarily…

We show that the martingale component in the long-term factorization of the stochastic discount factor due to Alvarez and Jermann (2005) and Hansen and Scheinkman (2009) is highly volatile, produces a downward-sloping term structure of bond…