Mixed-fractional Models to Credit Risk Pricing

Xichao Sun and Litan Yan

Journal of Statistical and Econometric Methods, 2012, vol. 1, issue 3, 7

Abstract: This paper proposes a mixed fractional Brownian motion version of a well-known credit risk pricing structural model: the Merton model. Assume that the value of the firm obeys to a geometric mixed fractional Brownian motion, default probability, pricing of bonds, values of stocks and credit spreads are derived. Figures are given to illustrate the effectiveness of the result and show that the mixed-fractional models to credit risk pricing is a reasonable one.

Date: 2012
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