Bruti-Liberati, Nicola
[VerfasserIn]
;
Sklibosios Nikitopoulos, Christina
[Sonstige Person, Familie und Körperschaft];
Platen, Eckhard
[Sonstige Person, Familie und Körperschaft];
Schlögl, Erik
[Sonstige Person, Familie und Körperschaft]
Erschienen in:Quantitative Finance Research Centre Research Paper ; No. 242
Umfang:
1 Online-Ressource (33 p)
Sprache:
Englisch
DOI:
10.2139/ssrn.2174782
Identifikator:
Entstehung:
Anmerkungen:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments January 13, 2009 erstellt
Beschreibung:
The objective of this paper is to consider defaultable term structure models in a general setting beyond standard risk-neutral models. Using as numeraire the growth optimal portfolio, defaultable interest rate derivatives are priced under the real-world probability measure. Therefore, the existence of an equivalent risk-neutral probability measure is not required. In particular, the real-world dynamics of the instantaneous defaultable forward rates under a jump-diffusion extension of a HJM type framework are derived. Thus, by establishing a modelling framework fully under the real-world probability measure, the challenge of reconciling real-world and risk-neutral probabilities of default is deliberately avoided, which provides significant extra modelling freedom. In addition, for certain volatility specifications, finite dimensional Markovian defaultable term structure models are derived. The paper also demonstrates an alternative defaultable term structure model. It provides tractable expressions for the prices of defaultable derivatives under the assumption of independence between the discounted growth optimal portfolio and the default-adjusted short rate. These expressions are then used in a more general model as control variates for Monte Carlo simulations of credit derivatives