Alternative defaultable term structure models

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dc.contributor.author Bruti Liberati, N
dc.contributor.author Nikitopoulos Sklibosios, C
dc.contributor.author Platen, E
dc.contributor.author Schlogl, E
dc.date.accessioned 2010-05-28T09:42:14Z
dc.date.issued 2009-01
dc.identifier.citation Asia - Pacific Financial Markets, 2009, 16 (1), pp. 1 - 31
dc.identifier.issn 1387-2834
dc.identifier.other C1 en_US
dc.identifier.uri http://hdl.handle.net/10453/8281
dc.description.abstract The objective of this paper is to consider defaultable term structure models in a general setting beyond standard risk-neutral models. Using as numeraire the growth optimal portfolio, defaultable interest rate derivatives are priced under the real-world probability measure. Therefore, the existence of an equivalent risk-neutral probability measure is not required. In particular, the real-world dynamics of the instantaneous defaultable forward rates under a jump-diffusion extension of a HJM type framework are derived. Thus, by establishing a modelling framework fully under the real-world probability measure, the challenge of reconciling real-world and risk-neutral probabilities of default is deliberately avoided, which provides significant extra modelling freedom. In addition, for certain volatility specifications, finite dimensional Markovian defaultable term structure models are derived. The paper also demonstrates an alternative defaultable term structure model. It provides tractable expressions for the prices of defaultable derivatives under the assumption of independence between the discounted growth optimal portfolio and the default-adjusted short rate. These expressions are then used in a more general model as control variates for Monte Carlo simulations of credit derivatives.
dc.publisher Springer
dc.relation.hasversion Accepted manuscript version en_US
dc.relation.isbasedon 10.1007/s10690-009-9084-6
dc.title Alternative defaultable term structure models
dc.type Journal Article
dc.parent Asia - Pacific Financial Markets
dc.journal.volume 1
dc.journal.volume 16
dc.journal.number 1 en_US
dc.publocation New York, USA en_US
dc.identifier.startpage 1 en_US
dc.identifier.endpage 31 en_US
dc.cauo.name BUS.School of Finance and Economics en_US
dc.conference Verified OK en_US
dc.for 1502 Banking, Finance and Investment
dc.personcode 970685
dc.personcode 990337
dc.personcode 981056
dc.personcode 10086991
dc.percentage 100 en_US
dc.classification.name Banking, Finance and Investment en_US
dc.classification.type FOR-08 en_US
dc.edition en_US
dc.custom en_US
dc.date.activity en_US
dc.location.activity en_US
dc.description.keywords Defaultable forward rates - Jump-diffusion processes - Growth optimal portfolio - Real-world pricing
pubs.embargo.period Not known
pubs.organisational-group /University of Technology Sydney
pubs.organisational-group /University of Technology Sydney/Faculty of Business
pubs.organisational-group /University of Technology Sydney/Faculty of Business/Finance
pubs.organisational-group /University of Technology Sydney/Faculty of Science
pubs.organisational-group /University of Technology Sydney/Strength - Quantitative Finance
utslib.copyright.status Open Access
utslib.copyright.date 2015-04-15 12:23:47.074767+10
pubs.consider-herdc true
utslib.collection.history General (ID: 2)
utslib.collection.history School of Mathematical Sciences (ID: 340)
utslib.collection.history School of Mathematical Sciences (ID: 340)


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