AN INFINITE FACTOR MODEL FOR CREDIT RISK

Thorsten Schmidt ()
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Thorsten Schmidt: Department of Mathematics, University of Leipzig, Augustusplatz 10/11, D-04109 Leipzig, Germany

International Journal of Theoretical and Applied Finance (IJTAF), 2006, vol. 09, issue 01, 43-68

Abstract: The defaultable term structure is modeled using stochastic differential equations in Hilbert spaces. This leads to an infinite dimensional model, which is free of arbitrage under a certain drift condition. Furthermore, the model is extended to incorporate ratings based on a Markov chain.

Keywords: Credit risk; forward rates; SDE on Hilbert spaces; infinite dimensional models; ratings; random fields (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (5)

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DOI: 10.1142/S0219024906003482

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