IDEAS home Printed from https://ideas.repec.org/p/uts/rpaper/202.html
   My bibliography  Save this paper

Pricing of Defaultable Securities in a Multi-Factor Quadratic Gaussian Model

Author

Listed:
  • Samson Assefa

Abstract

We present the multi-factor quadratic reduced form model for pricing of credit risky securities. We use quadratic Gaussian processes to model the short term interest rate and the intensity of default showing that we get tractable formulas for the price of credit default swaps and credit default swaptions.

Suggested Citation

  • Samson Assefa, 2007. "Pricing of Defaultable Securities in a Multi-Factor Quadratic Gaussian Model," Research Paper Series 202, Quantitative Finance Research Centre, University of Technology, Sydney.
    • Handle: RePEc:uts:rpaper:202
    as

    Download full text from publisher

    File URL: https://www.uts.edu.au/sites/default/files/qfr-archive-02/QFR-rp202.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. John C. Cox & Jonathan E. Ingersoll Jr. & Stephen A. Ross, 2005. "A Theory Of The Term Structure Of Interest Rates," World Scientific Book Chapters, in: Sudipto Bhattacharya & George M Constantinides (ed.), Theory Of Valuation, chapter 5, pages 129-164, World Scientific Publishing Co. Pte. Ltd..
    2. Li Chen & Damir Filipović & H. Vincent Poor, 2004. "Quadratic Term Structure Models For Risk‐Free And Defaultable Rates," Mathematical Finance, Wiley Blackwell, vol. 14(4), pages 515-536, October.
    3. Samson Assefa, 2007. "Calibration and Pricing in a Multi-Factor Quadratic Gaussian Model," Research Paper Series 197, Quantitative Finance Research Centre, University of Technology, Sydney.
    4. Chen, Ren-Raw & Cheng, Xiaolin & Fabozzi, Frank J. & Liu, Bo, 2008. "An Explicit, Multi-Factor Credit Default Swap Pricing Model with Correlated Factors," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 43(1), pages 123-160, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Samson Assefa, 2007. "Calibration and Pricing in a Multi-Factor Quadratic Gaussian Model," Research Paper Series 197, Quantitative Finance Research Centre, University of Technology, Sydney.
    2. Marco Realdon, 2007. "A Two Factor Black-Karasinski Credit Default Swap Pricing Model (forthcoming in the Icfai Journal of Derivatives Markets, Vol IV, No 4, October 2007; all copyrights rest with the Icfai University Pres," Discussion Papers 07/25, Department of Economics, University of York.
    3. Michele Bianchi & Frank Fabozzi, 2015. "Investigating the Performance of Non-Gaussian Stochastic Intensity Models in the Calibration of Credit Default Swap Spreads," Computational Economics, Springer;Society for Computational Economics, vol. 46(2), pages 243-273, August.
    4. Jirô Akahori & Takahiro Tsuchiya, 2006. "What is the Natural Scale for a Lévy Process in Modelling Term Structure of Interest Rates?," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 13(4), pages 299-313, December.
    5. Gourieroux, Christian & Sufana, Razvan, 2011. "Discrete time Wishart term structure models," Journal of Economic Dynamics and Control, Elsevier, vol. 35(6), pages 815-824, June.
    6. Stéphane Goutte, 2013. "Markov switching quadratic term structure models," Working Papers hal-00821745, HAL.
    7. Raphaël Homayoun Boroumand & St�phane Goutte & Thomas Porcher, 2014. "A regime-switching model to evaluate bonds in a quadratic term structure of interest rates," Applied Financial Economics, Taylor & Francis Journals, vol. 24(21), pages 1361-1366, November.
    8. Jirô Akahori & Hiroki Aoki & Yoshihiko Nagata, 2006. "Generalizations of Ho–Lee’s binomial interest rate model I: from one- to multi-factor," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 13(2), pages 151-179, June.
    9. Likuan Qin & Vadim Linetsky, 2016. "Positive Eigenfunctions of Markovian Pricing Operators: Hansen-Scheinkman Factorization, Ross Recovery, and Long-Term Pricing," Operations Research, INFORMS, vol. 64(1), pages 99-117, February.
    10. Samson Assefa, 2007. "Pricing Swaptions and Credit Default Swaptions in the Quadratic Gaussian Factor Model," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 31, July-Dece.
    11. Guarin, Alexander & Liu, Xiaoquan & Ng, Wing Lon, 2014. "Recovering default risk from CDS spreads with a nonlinear filter," Journal of Economic Dynamics and Control, Elsevier, vol. 38(C), pages 87-104.
    12. Guarin, Alexander & Liu, Xiaoquan & Ng, Wing Lon, 2011. "Enhancing credit default swap valuation with meshfree methods," European Journal of Operational Research, Elsevier, vol. 214(3), pages 805-813, November.
    13. Chiarella, Carl & Fanelli, Viviana & Musti, Silvana, 2011. "Modelling the evolution of credit spreads using the Cox process within the HJM framework: A CDS option pricing model," European Journal of Operational Research, Elsevier, vol. 208(2), pages 95-108, January.
    14. Samson Assefa, 2007. "Pricing Swaptions and Credit Default Swaptions in the Quadratic Gaussian Factor Model," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 3-2007, January-A.
    15. Cody Hyndman & Xinghua Zhou, 2014. "Explicit solutions of quadratic FBSDEs arising from quadratic term structure models," Papers 1410.1220, arXiv.org, revised Dec 2014.
    16. Marco Realdon, 2007. "Extended-Gaussian Term Structure Models and Credit Risk Applications," Discussion Papers 07/27, Department of Economics, University of York.
    17. Leunglung Chan & Eckhard Platen, 2016. "Pricing of long dated equity-linked life insurance contracts," Published Paper Series 2016-5, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
    18. Si Cheng & Michael R. Tehranchi, 2015. "Polynomial term structure models," Papers 1504.03238, arXiv.org, revised Dec 2020.
    19. Realdon, Marco, 2006. "Quadratic term structure models in discrete time," Finance Research Letters, Elsevier, vol. 3(4), pages 277-289, December.
    20. Robert A. Jarrow, 2009. "The Term Structure of Interest Rates," Annual Review of Financial Economics, Annual Reviews, vol. 1(1), pages 69-96, November.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:uts:rpaper:202. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Duncan Ford (email available below). General contact details of provider: https://edirc.repec.org/data/qfutsau.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.