Stochastic Evolution of Distributions - Applications to CDS indices

Guillaume Bernis (), Nicolas Brunel (), Antoine Kornprobst () and Simone Scotti ()
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Guillaume Bernis: Natixis Asset Management, Fixed Income
Nicolas Brunel: Université d'Evry Val d'Essonne, ENSIIE
Antoine Kornprobst: Centre d'Economie de la Sorbonne, https://centredeconomiesorbonne.univ-paris1.fr
Simone Scotti: LPMA, Université Paris Diderot

Documents de travail du Centre d'Economie de la Sorbonne from Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne

Abstract: We use mixture of percentile functions to model credit spread evolution, which allows to obtain a flexible description of credit indices and their components at the same time. We show regularity results in order to extend mixture percentile to the dynamic case. We characterise the stochastic differential equation of the flow of cumulative distribution function and we link it with the ordered list of the components of the credit index. The main application is to introduce a functional version of Bollinger bands. The crossing of bands by the spread is associated with a trading signal. Finally, we show the richness of the signals produced by functional Bollinger bands compared with standard one with a pratical example

Keywords: Mathematical Methods; Model Construction and Validation; Stochastic Analysis; Credit Default Swaps; Dynamic Distributions (search for similar items in EconPapers)
JEL-codes: C02 C51 C52 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2017-01
New Economics Papers: this item is included in nep-ore
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Persistent link: https://EconPapers.repec.org/RePEc:mse:cesdoc:17007

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