A tractable LIBOR model with default risk

DOI10.1007/S11579-012-0090-5MaRDI QIDQ356479zbMATH OpenOpenAlexFDO

Authors Zorana Grbac, Antonis Papapantoleon

Publication date 25 July 2013

Published in Mathematics and Financial Economics (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1202.0587

zbMATH Keywords

default riskcounterparty riskaffine processesaffine LIBOR modelsanalytically tractable modelsCDS spreadLIBOR rates

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20) Credit risk (91G40) Martingales with continuous parameter (60G44) Interest rates, asset pricing, etc. (stochastic models) (91G30)

Abstract: We develop a model for the dynamic evolution of default-free and defaultable interest rates in a LIBOR framework. Utilizing the class of affine 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.

Recommendations

• The affine LIBOR models
• A Unified View of LIBOR Models
• The Lévy LIBOR model
• The LIBOR model dynamics: Approximations, calibration and diagnostics
• A mean-field extension of the LIBOR market model
• Robust Libor Modelling and Pricing of Derivative Products
• A jump-diffusion Libor model and its robust calibration
• A defaultable HJM modelling of the Libor rate for pricing basis swaps after the credit crunch
• Rating based Lévy Libor model
• A flexible matrix Libor model with smiles

Cites work

• scientific article; zbMATH DE number 1834045 (Why is no real title available?)
• scientific article; zbMATH DE number 2241893 (Why is no real title available?)
• A Fourier transform method for spread option pricing
• A general characterization of one factor affine term structure models
• A multiple-curve HJM model of interbank risk
• Affine processes and applications in finance
• Analysis of Fourier transform valuation formulas and applications
• Changes of filtrations and of probability measures
• Credit risk in Lévy Libor modeling: rating based approach.
• Credit risk: Modelling, valuation and hedging
• Immersion property and credit risk modelling
• Interest rate models -- theory and practice. With smile, inflation and credit
• LIBOR and swap market models and measures
• On models of default risk.
• Sato processes in default modelling
• Swap Pricing with Two-Sided Default Risk in a Rating-Based Model *
• The Market Model of Interest Rate Dynamics
• The affine LIBOR models
• Time-inhomogeneous affine processes
• Yield curve shapes and the asymptotic short rate distribution in affine one-factor models

Cited in

(8)

• A Unified View of LIBOR Models
• A general HJM framework for multiple yield curve modelling
• Interbank credit risk modeling with self-exciting jump processes
• The affine inflation market models
• Affine LIBOR models with multiple curves: theory, examples and calibration
• A multiple curve Lévy swap market model
• DEFAULTABLE LÉVY LIBOR RATES AND CREDIT DERIVATIVES
• The affine LIBOR models

This page was built for publication: A tractable LIBOR model with default risk

Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q356479)