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An Infinite Factor Model For Credit Risk

Author

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  • THORSTEN SCHMIDT

    (Department of Mathematics, University of Leipzig, Augustusplatz 10/11, D-04109 Leipzig, Germany)

Abstract

The defaultable term structure is modeled using stochastic differential equations in Hilbert spaces. This leads to an infinite dimensional model, which is free of arbitrage under a certain drift condition. Furthermore, the model is extended to incorporate ratings based on a Markov chain.

Suggested Citation

  • Thorsten Schmidt, 2006. "An Infinite Factor Model For Credit Risk," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 9(01), pages 43-68.
    • Handle: RePEc:wsi:ijtafx:v:09:y:2006:i:01:n:s0219024906003482
    DOI: 10.1142/S0219024906003482
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    References listed on IDEAS

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    1. M. De Donno & M. Pratelli, 2006. "A theory of stochastic integration for bond markets," Papers math/0602532, arXiv.org.
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    Cited by:

    1. Fontana, Claudio & Schmidt, Thorsten, 2018. "General dynamic term structures under default risk," Stochastic Processes and their Applications, Elsevier, vol. 128(10), pages 3353-3386.
    2. Claudio Fontana & Thorsten Schmidt, 2016. "General dynamic term structures under default risk," Papers 1603.03198, arXiv.org, revised Nov 2017.
    3. Bibinger, Markus & Trabs, Mathias, 2020. "Volatility estimation for stochastic PDEs using high-frequency observations," Stochastic Processes and their Applications, Elsevier, vol. 130(5), pages 3005-3052.
    4. Özkan Fehmi & Schmidt Thorsten, 2005. "Credit risk with infinite dimensional Lévy processes," Statistics & Risk Modeling, De Gruyter, vol. 23(4), pages 281-299, April.
    5. Valerii Maltsev & Michael Pokojovy, 2021. "Applying Heath-Jarrow-Morton Model to Forecasting the US Treasury Daily Yield Curve Rates," Mathematics, MDPI, vol. 9(2), pages 1-25, January.

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