Credit Barrier Models
نویسنده
چکیده
The model introduced in this article is designed to provide a consistent representation for both the real-world and pricing measures for the credit process. We find that good agreement with historical and market data can be achieved across all credit ratings simultaneously. The model is characterized by an underlying stochastic process that represents credit quality and default events are associated to barrier crossings. The stochastic process has state dependent volatility and jumps which are estimated by using empirical migration and default rates. A risk-neutralizing drift and implied recovery rates are estimated to consistently match the average spread curves corresponding to all the various ratings.
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