Credit risk with semimartingales and risk-neutrality

Jesús P. Colino and Winfried Stute

DES - Working Papers. Statistics and Econometrics. WS from Universidad Carlos III de Madrid. Departamento de Estadística

Abstract: A no-arbitrage framework to model interest rates with credit risk, based on the LIBOR additive process, and an approach to price corporate bonds in incomplete markets, is presented in this paper. We derive the no-arbitrage conditions under different conditions of recovery, and we obtain new expressions in order to estimate the probabilities of default under risk-neutral measure.

Keywords: Credit-risk; Semimartingales; Interest-rate; modelling (search for similar items in EconPapers)
Date: 2008-11
New Economics Papers: this item is included in nep-ban and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:cte:wsrepe:ws085417

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