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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| 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 |
