Markovian Defaultable HJM Term Structure Models with Unspanned Stochastic Volatility
AbstractThis paper presents a class of defaultable term structure models within the HJM framework with stochastic volatility. Under certain volatility specifications, the model admits finite dimensional Markovian structures and consequently provides tractable solutions for interest rate derivatives. We also investigate the effect of stochastic volatility and of correlation between the stochastic volatility and credit spreads on the defaultable short rate and defaultable bond prices.
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Bibliographic InfoPaper provided by Quantitative Finance Research Centre, University of Technology, Sydney in its series Research Paper Series with number 283.
Date of creation: 01 Aug 2010
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Stochastic volatility; Heath-Jarrow-Morton model; defaultable forward rates; credit spreads;
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- Carl Chiarella & Samuel Chege Maina & Christina Nikitopoulos-Sklibosios, 2011. "Credit Derivative Pricing with Stochastic Volatility Models," Research Paper Series 293, Quantitative Finance Research Centre, University of Technology, Sydney.
- Nicola Moreni & Andrea Pallavicini, 2010. "Parsimonious HJM Modelling for Multiple Yield-Curve Dynamics," Papers 1011.0828, arXiv.org.
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