Introducing and testing the Carr model of default
The paper introduces a structural model of default, extending Merton's model of default. The model is driven by an additive process which ensures analytical tractability. The model is named the \textit{Carr model of default} due to the fact that the underlying asset distribution is the one introduced in [\textit{P. Carr} and \textit{L. Torricelli}, Finance Stoch. 25, No. 4, 689--724 (2021; Zbl 1475.91352); J. Deriv. 31, No. 2, 1--32 (2022; \url{doi:10.3905/jod.2022.1.172})]. Several pricing formulas are explicitly obtained for this model. Empirical analysis reveals that the proposed model is able to reproduce realistic values of CDS spreads.
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- Single and joint default in a structural model with purely discontinuous asset prices
- Table of integrals, series, and products. Translated from the Russian. Translation edited and with a preface by Alan Jeffrey and Daniel Zwillinger. With one CD-ROM (Windows, Macintosh and UNIX)
- THE RANGE OF TRADED OPTION PRICES
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