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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.

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Metadaten
Author:Zorana Grbac, Antonis Papapantoleon
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
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