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https://hdl.handle.net/10419/40179
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DC Field | Value | Language |
---|---|---|
dc.contributor.author | Packham, Natalie | en |
dc.contributor.author | Schlögl, Lutz | en |
dc.contributor.author | Schmidt, Wolfgang M. | en |
dc.date.accessioned | 2010-09-09 | - |
dc.date.accessioned | 2010-09-24T09:03:56Z | - |
dc.date.available | 2010-09-24T09:03:56Z | - |
dc.date.issued | 2009 | - |
dc.identifier.uri | http://hdl.handle.net/10419/40179 | - |
dc.description.abstract | The payoff of many credit derivatives depends on the level of credit spreads. In particular, credit derivatives with a leverage component are subject to gap risk, a risk associated with the occurrence of jumps in the underlying credit default swaps. In the framework of first passage time models, we consider a model that addresses these issues. The principal idea is to model a credit quality process as an Itô integral with respect to a Brownian motion with a stochastic volatility. Using a representation of the credit quality process as a time-changed Brownian motion, one can derive formulas for conditional default probabilities and credit spreads. An example for a volatility process is the square root of a Lévy-driven Ornstein-Uhlenbeck process. The model can be implemented efficiently using a technique called Panjer recursion. Calibration to a wide range of dynamics is supported. We illustrate the effectiveness of the model by valuing a leveraged credit-linked note. | en |
dc.language.iso | eng | en |
dc.publisher | |aFrankfurt School of Finance & Management, Centre for Practical Quantitative Finance (CPQF) |cFrankfurt a. M. | en |
dc.relation.ispartofseries | |aCPQF Working Paper Series |x22 | en |
dc.subject.jel | G12 | en |
dc.subject.jel | G13 | en |
dc.subject.jel | G24 | en |
dc.subject.jel | C69 | en |
dc.subject.ddc | 330 | en |
dc.subject.keyword | gap risk | en |
dc.subject.keyword | credit spreads | en |
dc.subject.keyword | credit dynamics | en |
dc.subject.keyword | first passage time models | en |
dc.subject.keyword | stochastic volatility | en |
dc.subject.keyword | general Ornstein-Uhlenbeck processes | en |
dc.subject.stw | Finanzderivat | en |
dc.subject.stw | Zins | en |
dc.subject.stw | Risikoprämie | en |
dc.subject.stw | Credit Default Swap | en |
dc.subject.stw | Volatilität | en |
dc.subject.stw | Stochastischer Prozess | en |
dc.subject.stw | Theorie | en |
dc.title | Credit gap risk in a first passage time model with jumps | - |
dc.type | Working Paper | en |
dc.identifier.ppn | 830010149 | en |
dc.rights | http://www.econstor.eu/dspace/Nutzungsbedingungen | en |
dc.identifier.repec | RePEc:zbw:cpqfwp:22 | en |
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