Monotonicity of the collateralized debt obligations term structure model

DOI10.1080/17442508.2013.879145zbMATH Open1337.91121arXiv1512.03173OpenAlexW2962708964MaRDI QIDQ2811110FDOQ2811110

Michał Barski

Publication date: 10 June 2016

Published in: Stochastics (Search for Journal in Brave)

Abstract: The problem of existence of arbitrage free and monotone CDO term structure models is studied. Conditions for positivity and monotonicity of the corresponding Heath-Jarrow-Morton-Musiela equation for the $x$-forward rates with the use of the Milian type result are formulated. Two state spaces are taken into account - of square integrable functions and a Sobolev space. For the first the regularity results concerning pointwise monotonicity are proven. Arbitrage free and monotone models are characterized in terms of the volatility of the model and characteristics of the driving L'evy process.

Full work available at URL: https://arxiv.org/abs/1512.03173

zbMATH Keywords

monotonicitybond marketHJM conditionCDO modelHJMM equation

Mathematics Subject Classification ID

Processes with independent increments; Lévy processes (60G51) Stochastic partial differential equations (aspects of stochastic analysis) (60H15) Credit risk (91G40)

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Cited In (1)

• Invariant cones for jump-diffusions in infinite dimensions

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