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A simple model for credit migration and spread curves

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Abstract.

We propose and examine a simple model for credit migration and spread curves of a single firm both under real-world and risk-neutral measures. 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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Authors and Affiliations

  1. Department of Electrical Engineering, Princeton University, NJ 08544, Princeton, USA

    Li Chen

  2. Federal Office of Private Insurance (BPV), Switzerland

    Damir Filipović

Authors
  1. Li Chen
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  2. Damir Filipović
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Corresponding author

Correspondence to Li Chen.

Additional information

Manuscript received: May 2003; final version received: May 2004

Mathematics Subject Classification (2000):

60J25, 60J75

JEL Classification:

G12, G13

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Chen, L., Filipović, D. A simple model for credit migration and spread curves. Finance Stochast. 9, 211–231 (2005). https://doi.org/10.1007/s00780-004-0140-9

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  • DOI: https://doi.org/10.1007/s00780-004-0140-9

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