Related papers: General dynamic term structures under default risk
In the context of a locally risk-minimizing approach, the problem of hedging defaultable claims and their Follmer-Schweizer decompositions are discussed in a structural model. This is done when the underlying process is a finite variation…
A multi-dimensional extension of the structural default model with firms' values driven by diffusion processes with Marshall-Olkin-inspired correlation structure is presented. Semi-analytical methods for solving the forward calibration…
We develop a generalization of the Black-Cox structural model of default risk. The extended model captures uncertainty related to firm's ability to avoid default even if company's liabilities momentarily exceeding its assets. Diffusion in a…
In this paper, we introduce a new extension of the generalized linear failure rate distributions. It includes some well-known lifetime distributions such as extension of generalized exponential and generalized linear failure rate…
We present a general model for default time, making precise the role of the intensity process, and showing that this process allows for a knowledge of the conditional distribution of the default only "before the default". This lack of…
We present a general framework for the estimation of corporate default based on a firm's capital structure, when its assets are assumed to follow a pure jump L\'evy processes; this setup provides a natural extension to usual default metrics…
In this paper, we study a continuous time structural asset value model for two correlated firms using a two-dimensional Brownian motion. We consider the situation of incomplete information, where the information set available to the market…
We study optimal investment in an asset subject to risk of default for investors that rely on different levels of information. The price dynamics can include noises both from a Wiener process and a Poisson random measure with infinite…
Intuitively, the default risk of a single borrower is higher when her or his assets and debt are denominated in different currencies. Additionally, the default dependence of borrowers with assets and debt in different currencies should be…
Overnight rates, such as the SOFR (Secured Overnight Financing Rate) in the US, are central to the current reform of interest rate benchmarks. A striking feature of overnight rates is the presence of jumps and spikes occurring at…
We study the Hull-White model for the term structure of interest rates in the presence of volatility uncertainty. The uncertainty about the volatility is represented by a set of beliefs, which naturally leads to a sublinear expectation and…
Risk management is an important practice in the banking industry. In this paper we develop a new methodology to estimate and predict the probability of default (PD) based on the rating transition matrices, which relates the rating…
The paper analyzes the mathematics of the relationship between the default risk and yield-to-maturity of a coupon bond. It is shown that the yield-to-maturity is driven not only by the default probability and recovery rate of the bond but…
Pricing formulae for defaultable corporate bonds with discrete coupons under consideration of the government taxes in the united model of structural and reduced form models are provided. The aim of this paper is to generalize the…
We present the qGaussian generalization of the Merton framework, which takes into account slow fluctuations of the volatility of the firms market value of financial assets. The minimal version of the model depends on the Tsallis entropic…
In this paper we develop a tractable structural model with analytical default probabilities depending on some dynamics parameters, and we show how to calibrate the model using a chosen number of Credit Default Swap (CDS) market quotes. We…
This note studies a certain stochastic evolution equation in the space of probability measures, including existence and uniqueness results. A solution of this equation gives rise, in a natural way, to an interest rate term structure model,…
In recent years research on credit risk modelling has mainly focused on default probabilities. Recovery rates are usually modelled independently, quite often they are even assumed constant. Then, however, the structural connection between…
Filiz et al. (2008) proposed a model for the pattern of defaults seen among a group of firms at the end of a given time period. The ingredients in the model are a graph, where the vertices correspond to the firms and the edges describe the…
This article gives a probabilistic overview of the widely used method of default probability estimation proposed by K. Pluto and D. Tasche. There are listed detailed assumptions and derivation of the inequality where the probability of…