Discrete Tenor Models for Credit Risky Portfolios Driven by Time-Inhomogeneous Lévy Processes
نویسندگان
چکیده
The goal of this paper is to specify dynamic term structure models with discrete tenor structure for credit portfolios in a top-down setting driven by time-inhomogeneous Lévy processes. We provide a new framework, conditions for absence of arbitrage, explicit examples, an affine setup which includes contagion and pricing formulas for STCDOs and options on STCDOs. A calibration to iTraxx data with an extended Kalman filter shows an excellent fit over the full observation period. The calibration is done on a set of CDO tranche spreads ranging across six tranches and three maturities.
منابع مشابه
Credit Risk in Lévy Libor Modeling: Rating Based Approach
Preface Modeling of credit risk has become a very important and rapidly expanding field of mathematical finance in the last fifteen years. Apart from a purely academic interest, the credit derivatives industry clearly needs advanced mathematical models to objectively assess and hedge this kind of risk, which was only underlined by the recent financial crisis. Although there exist several credit...
متن کاملTime - inhomogeneous Lévy processes in interest rate and credit risk models
In this thesis, we present interest rate models and a credit risk model, all driven by time-inhomogeneous Lévy processes, i.e. stochastic processes whose increments are independent but in general not stationary. In the interest rate part, we discuss a Heath–Jarrow–Morton forward rate model (the Lévy term structure model), a model for forward bond prices (the Lévy forward price model) and a Libo...
متن کاملCdo Market Models Driven by Time-inhomogeneous Lévy Processes
This paper considers a top-down approach for CDO valuation and proposes a market model. We extend previous research on this topic in two directions: on the one side, we use as driving process for the interest rate dynamics a time-inhomogeneous Lévy process, and on the other side, we do not assume that all maturities are available in the market. Only a discrete tenor structure is considered, whi...
متن کاملEfficient and Accurate Log-lévy Approximations to Lévy Driven Libor Models
The LIBOR market model is very popular for pricing interest rate derivatives, but is known to have several pitfalls. In addition, if the model is driven by a jump process, then the complexity of the drift term is growing exponentially fast (as a function of the tenor length). In this work, we consider a Lévy-driven LIBOR model and aim at developing accurate and efficient log-Lévy approximations...
متن کاملRating based Lévy Libor model
In this paper we consider modeling of credit risk within the Libor market models. We extend the classical definition of the defaultfree forward Libor rate to defaultable bonds with credit ratings and develop the rating based Libor market model. As driving processes for the dynamics of the default-free and the pre-default term structure of Libor rates time-inhomogeneous Lévy processes are used. ...
متن کاملذخیره در منابع من
با ذخیره ی این منبع در منابع من، دسترسی به آن را برای استفاده های بعدی آسان تر کنید
عنوان ژورنال:
- SIAM J. Financial Math.
دوره 4 شماره
صفحات -
تاریخ انتشار 2013