Time-Changed Bessel Processes and Credit Risk
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Publication:6477015
arXivmath/0604305MaRDI QIDQ6477015FDOQ6477015
Authors: Marc Atlan, Boris Leblanc 
Publication date: 13 April 2006
Abstract: The Constant Elasticity of Variance (CEV) model is mathematically presented and then used in a Credit-Equity hybrid framework. Next, we propose extensions to the CEV model with default: firstly by adding a stochastic volatility diffusion uncorrelated from the stock price process, then by more generally time changing Bessel processes and finally by correlating stochastic volatility moves to the stock ones. Properties about strict local and true martingales in this study are discussed. Analytical formulas are provided and Fourier and Laplace transform techniques can then be used to compute option prices and probabilities of default.
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