A tractable LIBOR model with default risk
Please always quote using this URN:urn:nbn:de:0296-matheon-11480
- We develop a model for the dynamic evolution of default-free and defaultable interest rates in a LIBOR framework. Utilizing the class of a� ffine processes, this model produces positive LIBOR rates and spreads, while the dynamics are analytically tractable under defaultable forward measures. This leads to explicit formulas for CDS spreads, while semi-analytical formulas are derived for other credit derivatives. Finally, we give an application to counterparty risk.
Author: | Zorana Grbac, Antonis Papapantoleon |
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URN: | urn:nbn:de:0296-matheon-11480 |
Referee: | Dirk Becherer |
Document Type: | Preprint, Research Center Matheon |
Language: | English |
Date of first Publication: | 2012/08/01 |
Release Date: | 2012/08/01 |
Institute: | Research Center Matheon |
Technische Universität Berlin | |
MSC-Classification: | 91-XX GAME THEORY, ECONOMICS, SOCIAL AND BEHAVIORAL SCIENCES / 91Gxx Mathematical finance / 91G30 Interest rates (stochastic models) |
91-XX GAME THEORY, ECONOMICS, SOCIAL AND BEHAVIORAL SCIENCES / 91Gxx Mathematical finance / 91G40 Credit risk | |
Preprint Number: | 976 |