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The Optimal Analysis of Default Probability for a Credit Risk Model

Author

Listed:
  • Aiyin Wang
  • Ls Yong
  • Weili Zeng
  • Yang Wang

Abstract

A credit risk mathematical model is investigated. Under regular conditions, a different recovery scheme is proposed, which is an extension of the recovery of treasury value scheme (RTV) with time‐continuous liquidation. Assuming that a function depends on the optimal time for the liquidation and the recovery rate, we obtain the functional expression of the risky bond price. When the firm value follows a jump‐diffusion process with a Log‐exponentially distributed jump, we develop a method to obtain the optimal default probability with time‐continuous liquidation.

Suggested Citation

  • Aiyin Wang & Ls Yong & Weili Zeng & Yang Wang, 2014. "The Optimal Analysis of Default Probability for a Credit Risk Model," Abstract and Applied Analysis, John Wiley & Sons, vol. 2014(1).
    • Handle: RePEc:wly:jnlaaa:v:2014:y:2014:i:1:n:878306
    DOI: 10.1155/2014/878306
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    References listed on IDEAS

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