Credit risk with infinite dimensional Lévy processes

Özkan Fehmi and Schmidt Thorsten

Statistics & Risk Modeling, 2005, vol. 23, issue 4, 281-299

Abstract: The forward rate curve is assumed to follow a stochastic differential equation w.r.t. a Lévy process with infinite dimensions. Conditions under which the market is free of arbitrage are provided for both the interest rate case and for the case of credit risk with ratings. A simulation shows that typical movements of the yield curve are well captured by the model.

Keywords: Lévy random fields; infinite dimensional models; ratings; credit risk (search for similar items in EconPapers)
Date: 2005
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DOI: 10.1524/stnd.2005.23.4.281

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