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Credit risk with infinite dimensional Lévy processes

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  • Özkan Fehmi
  • Schmidt Thorsten

Abstract

The forward rate curve is assumed to follow a stochastic differential equation w.r.t. a Lévy process with infinite dimensions. Conditions under which the market is free of arbitrage are provided for both the interest rate case and for the case of credit risk with ratings. A simulation shows that typical movements of the yield curve are well captured by the model.

Suggested Citation

  • Özkan Fehmi & Schmidt Thorsten, 2005. "Credit risk with infinite dimensional Lévy processes," Statistics & Risk Modeling, De Gruyter, vol. 23(4), pages 281-299, April.
    • Handle: RePEc:bpj:strimo:v:23:y:2005:i:4/2005:p:281-299:n:2
    DOI: 10.1524/stnd.2005.23.4.281
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    References listed on IDEAS

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    Cited by:

    1. Albeverio, Sergio & Mastrogiacomo, Elisa & Smii, Boubaker, 2013. "Small noise asymptotic expansions for stochastic PDE’s driven by dissipative nonlinearity and Lévy noise," Stochastic Processes and their Applications, Elsevier, vol. 123(6), pages 2084-2109.

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