Martingale Estimation of Lévy Processes and Its Extension to Structural Credit Risk Models PDF Download
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Author: Ho Man Lam
Publisher:
ISBN:
Category : Credit
Languages : en
Pages : 86
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Book Description
Author: Ho Man Lam
Publisher:
ISBN:
Category : Credit
Languages : en
Pages : 86
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Book Description
Author: Marek Musiela
Publisher: Springer Science & Business Media
ISBN: 3540266534
Category : Mathematics
Languages : en
Pages : 721
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Book Description
A new edition of a successful, well-established book that provides the reader with a text focused on practical rather than theoretical aspects of financial modelling Includes a new chapter devoted to volatility risk The theme of stochastic volatility reappears systematically and has been revised fundamentally, presenting a much more detailed analyses of interest-rate models
Author: Ewan Thomas Braid Mackie
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Author: Takaaki Ozeki
Publisher:
ISBN:
Category :
Languages : en
Pages :
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This paper proposes an extended CreditGrades model called the Levy CreditGrades model, which is driven by a Levy process. In this setting, quasi closed-form formulae for pricing equity options to a reference firm and for calculating its survival probabilities are derived. Moreover, using three tractable Levy CreditGrades models, we compute implied volatilities on equity options and term structures of credit default swaps (CDSs) and we examine the jump risk effects of the firm's asset value on short term CDS spreads and equity volatility skew. As a result, with this extension, our model is found to have more significant abilities than the original model introduced by Finger et al. [2002] and Stamicar and Finger [2005], and it is more appropriate for pricing both equity and credit derivatives simultaneously.
Author: Donatien Hainaut
Publisher:
ISBN:
Category :
Languages : en
Pages : 18
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This paper presents a switching regime version of the Merton's structural model for the pricing of default risk. The default event depends on the total value of the firm's asset modeled by a Markov modulated Lévy process. The novelty of our approach is to consider that firm's asset jumps synchronously with a change in the regime. After a discussion of dynamics under the risk neutral measure, we present two models. In the first one, the default occurs at bond maturity if the firm's value falls below a predetermined barrier. In the second version, the company can bankrupt at multiple predetermined discrete times. The use of a Markov chain to model switches in hidden external factors makes it possible to capture the effects of changes in trends and volatilities exhibited by default probabilities. Finally, with synchronous jumps, the firm's asset and state processes are no longer uncorrelated.
Author: Hamidreza Arian
Publisher:
ISBN: 9780494970744
Category :
Languages : en
Pages :
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Author: Jozef Kollár
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Our research falls into a broad area of pricing and hedging of contingent claims in incomplete markets. In the rst part we introduce the L evy processes as a suitable class of processes for nancial modelling purposes. This in turn causes the market to become incomplete in general and therefore the martingale measure for the pricing/hedging purposes has to be chosen by introducing some subjective criteria. We study several such criteria in the second section for a general stochastic volatility model driven by L evy process, leading to minimal martingale measure, variance-optimal, or the more general q-optimal martingale measure, for which we show the convergence to the minimal entropy martingale measure for q # 1. The martingale measures studied in the second section are put to use in the third section, where we consider various hedging problems in both martingale and semimartingale setting. We study locally risk-minimization hedging problem, meanvariance hedging and the more general p-optimal hedging, of which the meanvariance hedging is a special case for p = 2. Our model allows us to explicitly determine the variance-optimal martingale measure and the mean-variance hedging strategy using the structural results of Gourieroux, Laurent and Pham (1998) extended to discontinuous case by Arai (2005a). Assuming a Markovian framework and appealing to the Feynman-Kac theorem, the optimal hedge can be found by solving a three-dimensional partial integrodi erential equation. We illustrate this in the last section by considering the variance-optimal hedge of the European put option, and nd the solution numerically by applying nite di erence method.
Author: Peter Tankov
Publisher: CRC Press
ISBN: 1135437947
Category : Business & Economics
Languages : en
Pages : 552
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Book Description
WINNER of a Riskbook.com Best of 2004 Book Award! During the last decade, financial models based on jump processes have acquired increasing popularity in risk management and option pricing. Much has been published on the subject, but the technical nature of most papers makes them difficult for nonspecialists to understand, and the mathematic
Author: Fehmi Özkan
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Author: Albert Cohen
Publisher:
ISBN:
Category :
Languages : en
Pages : 19
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In this work, we introduce a general framework for incorporating stochastic recovery into structural models. The framework extends the approach to recovery modeling developed in Cohen and Costanzino (2015, 2017) and provides for a systematic way to include different recovery processes into a structural credit model. The key observation is a connection between the partial information gap between firm manager and the market that is captured via a distortion of the probability of default. This last feature is computed by what is essentially a Girsanov transformation and reflects untangling of the recovery process from the default probability. Our framework can be thought of as an extension of Ishizaka and Takaoka (2003) and, in the same spirit of their work, we provide several examples of the framework including bounded recovery and a jump-to-zero model. One of the nice features of our framework is that, given prices from any one-factor structural model, we provide a systematic way to compute corresponding prices with stochastic recovery. The framework also provides a way to analyze correlation between Probability of Default (PD) and Loss Given Default (LGD), and term structure of recovery rates.
