Related papers: The Jarrow & Turnbull setting revisited
This article introduces a new mathematical concept of illiquidity that goes hand in hand with credit risk. The concept is not volume- but constraint-based, i.e., certain assets cannot be shorted and are ineligible as num\'eraire. If those…
In this paper, we establish a market model for the term structure of forward inflation rates based on the risk-neutral dynamics of nominal and real zero-coupon bonds. Under the market model, we can price inflation caplets as well as…
Transition risk can be defined as the business-risk related to the enactment of green policies, aimed at driving the society towards a sustainable and low-carbon economy. In particular, the value of certain firms' assets can be lower…
In this article, we explore a class of tractable interest rate models that have the property that the price of a zero-coupon bond can be expressed as a polynomial of a state diffusion process. Our results include a classification of all…
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…
A three-dimensional extension of the structural default model with firms' values driven by correlated diffusion processes is presented. Green's function based semi-analytical methods for solving the forward calibration problem and backward…
This study delves into the temporal dynamics within the equity market through the lens of bond traders. Recognizing that the riskless interest rate fluctuates over time, we leverage the Black-Derman-Toy model to trace its temporal…
We consider a structural default model in an interconnected banking network as in Lipton [International Journal of Theoretical and Applied Finance, 19(6), 2016], with mutual obligations between each pair of banks. We analyse the model…
This paper presents a new model for pricing financial derivatives subject to collateralization. It allows for collateral arrangements adhering to bankruptcy laws. As such, the model can back out the market price of a collateralized…
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 develops a two-dimensional structural framework for valuing credit default swaps and corporate bonds in the presence of default contagion. Modelling the values of related firms as correlated geometric Brownian motions with…
Mandatory emission trading schemes are being established around the world. Participants of such market schemes are always exposed to risks. This leads to the creation of an accompanying market for emission-linked derivatives. To evaluate…
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…
We develop a model for the dynamic evolution of default-free and defaultable interest rates in a LIBOR framework. Utilizing the class of affine processes, this model produces positive LIBOR rates and spreads, while the dynamics are…
We present a general derivation of the arbitrage-free pricing framework for multiple-currency collateralized products. We include the impact on option pricing of the policy adopted to fund in foreign currency, so that we are able to price…
This paper presents a convenient framework for modeling default process and pricing derivative securities involving credit risk. The framework provides an integrated view of credit valuation adjustment by linking distance-to-default,…
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…
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…
In this paper, we model financial markets with semi-Markov volatilities and price covarinace and correlation swaps for this markets. Numerical evaluations of vari- nace, volatility, covarinace and correlations swaps with semi-Markov…
This paper extends an option-theoretic approach to estimate liquidity spreads for corporate bonds. Inspired by Longstaff's equity market framework and subsequent work by Koziol and Sauerbier on risk-free zero-coupon bonds, the model views…