Research Repository

Ambiguity in defaultable term structure models

Fadina, Tolulope and Schmdit, Thorsten (2018) Ambiguity in defaultable term structure models. Working Paper. arXiv.

[img]
Preview
Text
Ambiguity_term_structure.pdf

Download (365kB) | Preview

Abstract

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.

Item Type: Monograph (Working Paper)
Divisions: Faculty of Science and Health
Faculty of Science and Health > Mathematical Sciences, Department of
SWORD Depositor: Elements
Depositing User: Elements
Date Deposited: 12 Aug 2021 08:02
Last Modified: 06 Jan 2022 14:16
URI: http://repository.essex.ac.uk/id/eprint/28268

Actions (login required)

View Item View Item