Transcription of building models for credit spreads - Frédéric …
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building models for credit spreads - Frédéric …
building models for credit spreads Angelo Arvanitis, Jon Gregory, Jean-Paul Laurent1. First version : April 1998. This version : June 12, 1998. Abstract : We present and study a modelling framework for the evolution of credit spreads . The credit spreads associated with a given rating follow a multidimensional jump-diffusion process while the movements from a given rating to another one are modelled by a continuous time Markov chain with a stochastic generator. This allows for a comprehensive modelling of risky bond price dynamics and includes as special features the approaches of Jarrow, Lando and Turnbull (1997), Longstaff and Schwartz (1995 and, Duffie and Kan (1996)2. The main appealing feature is the ability to get explicit pricing formulas for credit spreads , thus allowing easier implementation and calibration. We present examples based on market data and some empirical assessment of our model specification with historical time series.)
1 Building Models for Credit Spreads Angelo Arvanitis, Jon Gregory, Jean-Paul Laurent1 First version : April 1998 This version : June 12, 1998 Abstract: We present and study a modelling framework for the evolution of credit spreads.
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