A Non-Homogeneous Semi-Markov Reward Model For The Credit Spread Computation
AbstractIn this paper, we present a model to describe the evolution of the yield spread by considering the rating evaluation as the determinant of credit spreads. The underlying rating migration process is assumed to be a non-homogeneous discrete time semi-Markov process. We calculate the total sum of mean basis points paid within any given time interval. From this information we show how it is possible to extract the time evolution of expected interest rates and discount factors.
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Bibliographic InfoArticle provided by World Scientific Publishing Co. Pte. Ltd. in its journal International Journal of Theoretical and Applied Finance.
Volume (Year): 14 (2011)
Issue (Month): 02 ()
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Web page: http://www.worldscinet.com/ijtaf/ijtaf.shtml
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- Guglielmo D'Amico & Raimondo Manca & Giovanni Salvi, 2011. "Bivariate Semi-Markov Process for Counterparty Credit Risk," Science & Finance (CFM) working paper archive 1112.0226, Science & Finance, Capital Fund Management, revised Oct 2012.
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