Ambiguity in defaultable term structure models
We introduce the concept of no-arbitrage in a credit risk market under ambiguity considering an intensity-based framework. We assume the default intensity is not exactly known but lies between an upper and lower bound. By means of the Girsanov theorem, we start from the reference measure where the intensity is equal to $1$ and construct the set of equivalent martingale measures. From this viewpoint, the credit risky case turns out to be similar to the case of drift uncertainty in the $G$-expectation framework. Finally, we derive the interval of no-arbitrage prices for general bond prices in a Markovian setting.
Code (0)
등록된 구현이 없습니다.
Similar Papers 제목 키워드 기반
The Jarrow & Turnbull setting revisited
We consider a financial market with zero-coupon bonds that are exposed to credit and liquidity risk. We revisit the famous Jarrow & Turnbull setting in order to account for these two intricately intertwined risk types. W…
Hedging of defaultable claims in a structural model using a locally risk-minimizing approach
In the context of a locally risk-minimizing approach, the problem of hedging defaultable claims and their Follmer-Schweizer decompositions are discussed in a structural model. This is done when the underlying process is …
Reflected Backward SDE approach to the price-hedge of defaultable claims with contingent switching CSA
In this work we study the price-hedge issue for general defaultable contracts characterized by the presence of a contingent CSA of switching type. This is a contingent risk mitigation mechanism that allow the counterpart…
Equilibrium Defaultable Corporate Debt and Investment
In dynamic capital structure models with an investor break-even condition, the firm's Bellman equation may not generate a contraction mapping, so the standard existence and uniqueness conditions do not apply. First, we p…
Defaultable term structures driven by semimartingales
We consider a market with a term structure of credit risky bonds in the single-name case. We aim at minimal assumptions extending existing results in this direction: first, the random field of forward rates is driven by …