Alternative defaultable term structure models

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Show simple item record Bruti Liberati, Nicola en_US Nikitopoulos Sklibosios, Christina en_US Platen, Eckhard en_US Schlogl, Erik en_US
dc.contributor.editor en_US 2010-05-28T09:42:14Z 2010-05-28T09:42:14Z 2009 en_US
dc.identifier 2008003541 en_US
dc.identifier.citation Bruti Liberati Nicola et al. 2009, 'Alternative defaultable term structure models', Springer, vol. 16, no. 1, pp. 1-31. en_US
dc.identifier.issn 1387-2834 en_US
dc.identifier.other C1 en_US
dc.description.abstract The objective of this paper is to consider defaultable term structure models in a general setting beyond standard risk-neutral models. Using as numeraire the growth optimal portfolio, defaultable interest rate derivatives are priced under the real-world probability measure. Therefore, the existence of an equivalent risk-neutral probability measure is not required. In particular, the real-world dynamics of the instantaneous defaultable forward rates under a jump-diffusion extension of a HJM type framework are derived. Thus, by establishing a modelling framework fully under the real-world probability measure, the challenge of reconciling real-world and risk-neutral probabilities of default is deliberately avoided, which provides significant extra modelling freedom. In addition, for certain volatility specifications, finite dimensional Markovian defaultable term structure models are derived. The paper also demonstrates an alternative defaultable term structure model. It provides tractable expressions for the prices of defaultable derivatives under the assumption of independence between the discounted growth optimal portfolio and the default-adjusted short rate. These expressions are then used in a more general model as control variates for Monte Carlo simulations of credit derivatives. en_US
dc.language en_US
dc.publisher Springer en_US
dc.relation.hasversion Accepted manuscript version en_US
dc.title Alternative defaultable term structure models en_US
dc.parent Asia - Pacific Financial Markets en_US
dc.journal.volume 16 en_US
dc.journal.number 1 en_US
dc.publocation New York, USA en_US
dc.identifier.startpage 1 en_US
dc.identifier.endpage 31 en_US BUS.School of Finance and Economics en_US
dc.conference Verified OK en_US
dc.for 150200 en_US
dc.personcode 10086991 en_US
dc.personcode 981056 en_US
dc.personcode 970685 en_US
dc.personcode 990337 en_US
dc.percentage 100 en_US Banking, Finance and Investment en_US
dc.classification.type FOR-08 en_US
dc.edition en_US
dc.custom en_US en_US
dc.location.activity en_US
dc.description.keywords Defaultable forward rates - Jump-diffusion processes - Growth optimal portfolio - Real-world pricing en_US
dc.staffid en_US
dc.staffid 990337 en_US

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