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Stochastic Evolution of Distributions - Applications to CDS indices

Author

Listed:
  • Guillaume Bernis

    (Natixis Asset Management)

  • Nicolas Brunel

    (ENSIIE - Ecole Nationale Supérieure d'Informatique pour l'Industrie et l'Entreprise)

  • Antoine Kornprobst

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, Labex ReFi - UP1 - Université Paris 1 Panthéon-Sorbonne)

  • Simone Scotti

    (LPMA - Laboratoire de Probabilités et Modèles Aléatoires - UPMC - Université Pierre et Marie Curie - Paris 6 - UPD7 - Université Paris Diderot - Paris 7 - CNRS - Centre National de la Recherche Scientifique)

Abstract

We use mixture of percentile functions to model credit spread evolution, which allows to obtain a flexible description of credit indices and their components at the same time. We show regularity results in order to extend mixture percentile to the dynamic case. We characterise the stochastic differential equation of the flow of cumulative distribution function and we link it with the ordered list of the components of the credit index. The main application is to introduce a functional version of Bollinger bands. The crossing of bands by the spread is associated with a trading signal. Finally, we show the richness of the signals produced by functional Bollinger bands compared with standard one with a pratical example.

Suggested Citation

  • Guillaume Bernis & Nicolas Brunel & Antoine Kornprobst & Simone Scotti, 2017. "Stochastic Evolution of Distributions - Applications to CDS indices," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-01467736, HAL.
    • Handle: RePEc:hal:cesptp:halshs-01467736
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01467736
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    References listed on IDEAS

    as
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