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A Simple Model for Credit Migration and Spread Curves

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Author Info
Li Chen (Princeton University)
Damir Filipovic (Princeton University)

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Abstract

We propose and examine a simple model for credit migration and spread curves of a single firm both under the real-world and the risk-neutral measure. This model is a hybrid of a structural and a reduced-form model. Default is triggered either by successive downgradings of the firm or an unpredictable jump of the state process. The default time is accordingly decomposed into predictable and totally inaccessible part.

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Publisher Info
Paper provided by EconWPA in its series Finance with number 0305003.

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Length: 21 pages
Date of creation: 14 May 2003
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Handle: RePEc:wpa:wuwpfi:0305003

Note: Type of Document - pdf; prepared on IBM PC - PC-TEX/UNIX Sparc TeX; to print on HP/PostScript/Franciscan monk; pages: 21 ; figures: included. We never published this piece and now we would like to reduce our mailing and xerox cost by posting it.
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Related research
Keywords: Credit Risk Modeling Credit Migration Structural Models Intensity Based Models Affine Processes

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Find related papers by JEL classification:
G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Cox, John C & Ingersoll, Jonathan E, Jr & Ross, Stephen A, 1985. "A Theory of the Term Structure of Interest Rates," Econometrica, Econometric Society, vol. 53(2), pages 385-407, March. [Downloadable!] (restricted)
  2. Duffee, Gregory R, 1999. "Estimating the Price of Default Risk," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 12(1), pages 197-226.
  3. Duffie, Darrell & Singleton, Kenneth J, 1999. "Modeling Term Structures of Defaultable Bonds," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 12(4), pages 687-720.
  4. Jarrow, Robert A & Lando, David & Turnbull, Stuart M, 1997. "A Markov Model for the Term Structure of Credit Risk Spreads," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 10(2), pages 481-523.
  5. Li Chen & Damir Filipovic, 2003. "Pricing Credit Default Swaps Under Default Correlations and Counterparty Risk," Finance 0303009, EconWPA. [Downloadable!]
  6. Duan, Jin-Chuan & Simonato, Jean-Guy, 1999. " Estimating and Testing Exponential-Affine Term Structure Models by Kalman Filter," Review of Quantitative Finance and Accounting, Springer, vol. 13(2), pages 111-35, September. [Downloadable!] (restricted)
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  7. Jarrow, Robert A & Turnbull, Stuart M, 1995. " Pricing Derivatives on Financial Securities Subject to Credit Risk," Journal of Finance, American Finance Association, vol. 50(1), pages 53-85, March. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Li Chen & H. Vincent Poor, 2003. "Information Asymmetry, Corporate Debt Financing and Optimal Investment Decisions: A Reduced Form Approach," Finance 0312008, EconWPA. [Downloadable!]
  2. Li Chen & H. Vincent Poor, 2003. "Credit Risk Modeling and the Term Structure of Credit Spreads," Finance 0312009, EconWPA. [Downloadable!]
  3. Li Chen & Damir Filipovic, 2003. "Credit Derivatives in an Affine Framework," Finance 0307002, EconWPA. [Downloadable!]
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