Structural Credit Risk Models with Subordinated Processes

Martin Gurny, Sergio Ortobelli Lozza and Rosella Giacometti

Journal of Applied Mathematics, 2013, vol. 2013, 1-12

Abstract:

We discuss structural models based on Merton's framework. First, we observe that the classical assumptions of the Merton model are generally rejected. Secondly, we implement a structural credit risk model based on stable non-Gaussian processes as a representative of subordinated models in order to overcome some drawbacks of the Merton one. Finally, following the KMV-Merton estimation methodology, we propose an empirical comparison between the results obtained from the classical KMV-Merton model and the stable Paretian one. In particular, we suggest alternative parameter estimation for subordinated processes, and we optimize the performance for the stable Paretian model.

Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:hin:jnljam:138272

DOI: 10.1155/2013/138272

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