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Fehmi Özkan, Thorsten Schmidt

Credit risk with infinite dimensional Lévy processes

Keywords: Lévy random fields, infinite dimensional models, ratings, credit risk

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.

Statistics & Decisions, Oldenbourg Wissenschaftsverlag

Print ISSN: 0721-2631
Volume: 23, 04/2005
Pages: 281 - 299

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