A tractable LIBOR model with default risk

作者：Grbac Zorana; Papapantoleon Antonis^*

来源：Mathematics and Financial Economics, 2013, 7(2): 203-227.

DOI：10.1007/s11579-012-0090-5

• LIBOR rates
• Default risk
• Affine processes
• Affine LIBOR models
• Analytically tractable models
• CDS spread
• Counterparty risk

We develop a model for the dynamic evolution of default-free and defaultable interest rates in a LIBOR framework. Utilizing the class of affine processes, this model produces positive LIBOR rates and spreads, while the dynamics are analytically tractable under defaultable forward measures. This leads to explicit formulas for CDS spreads, while semi-analytical formulas are derived for other credit derivatives. Finally, we give an application to counterparty risk.

• 出版日期2013-3