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description Publicationkeyboard_double_arrow_right Article , Research 2019 BelgiumPublisher:Elsevier BV Authors: Cheikh Mbaye; Frédéric Vrins;Cheikh Mbaye; Frédéric Vrins;handle: 2078.1/221793 , 2078.1/254447
We address the so-called calibration problem which consists of fitting in a tractable way a given model to a specified term structure like, e.g., yield or default probability curves. Time-homogeneous jump-diffusions like Vasicek or Cox-Ingersoll-Ross (possibly coupled with compounded Poisson jumps, JCIR), are tractable processes but have limited flexibility; they fail to replicate actual market curves. The deterministic shift extension of the latter (Hull-White or JCIR++) is a simple but yet efficient solution that is widely used by both academics and practitioners. However, the shift approach is often not appropriate when positivity is required, which is a common constraint when dealing with credit spreads or default intensities. In this paper, we tackle this problem by adopting a time change approach. On the top of providing an elegant solution to the calibration problem under positivity constraint, our model features additional interesting properties in terms of implied volatilities. It is compared to the shift extension on various credit risk applications such as credit default swap, credit default swaption and credit valuation adjustment under wrong-way risk. The time change approach is able to generate much larger volatility and covariance effects under the positivity constraint. Our model offers an appealing alternative to the shift in such cases. Comment: 44 pages, figures and tables
arXiv.org e-Print Ar... arrow_drop_down arXiv.org e-Print ArchiveOther literature type . Preprint . 2019Data sources: arXiv.org e-Print ArchiveMathematical FinanceArticle . 2022 . Peer-reviewedLicense: Wiley Online Library User AgreementData sources: Crossrefadd ClaimPlease grant OpenAIRE to access and update your ORCID works.This Research product is the result of merged Research products in OpenAIRE.
You have already added works in your ORCID record related to the merged Research product.This Research product is the result of merged Research products in OpenAIRE.
You have already added works in your ORCID record related to the merged Research product.All Research productsarrow_drop_down <script type="text/javascript"> <!-- document.write('<div id="oa_widget"></div>'); document.write('<script type="text/javascript" src="https://www.openaire.eu/index.php?option=com_openaire&view=widget&format=raw&projectId=10.2139/ssrn.3366800&type=result"></script>'); --> </script>
For further information contact us at helpdesk@openaire.euAccess RoutesGreen bronze 0 citations 0 popularity Average influence Average impulse Average Powered by BIP!more_vert arXiv.org e-Print Ar... arrow_drop_down arXiv.org e-Print ArchiveOther literature type . Preprint . 2019Data sources: arXiv.org e-Print ArchiveMathematical FinanceArticle . 2022 . Peer-reviewedLicense: Wiley Online Library User AgreementData sources: Crossrefadd ClaimPlease grant OpenAIRE to access and update your ORCID works.This Research product is the result of merged Research products in OpenAIRE.
You have already added works in your ORCID record related to the merged Research product.This Research product is the result of merged Research products in OpenAIRE.
You have already added works in your ORCID record related to the merged Research product.All Research productsarrow_drop_down <script type="text/javascript"> <!-- document.write('<div id="oa_widget"></div>'); document.write('<script type="text/javascript" src="https://www.openaire.eu/index.php?option=com_openaire&view=widget&format=raw&projectId=10.2139/ssrn.3366800&type=result"></script>'); --> </script>
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description Publicationkeyboard_double_arrow_right Article , Research 2019 BelgiumPublisher:Elsevier BV Authors: Cheikh Mbaye; Frédéric Vrins;Cheikh Mbaye; Frédéric Vrins;handle: 2078.1/221793 , 2078.1/254447
We address the so-called calibration problem which consists of fitting in a tractable way a given model to a specified term structure like, e.g., yield or default probability curves. Time-homogeneous jump-diffusions like Vasicek or Cox-Ingersoll-Ross (possibly coupled with compounded Poisson jumps, JCIR), are tractable processes but have limited flexibility; they fail to replicate actual market curves. The deterministic shift extension of the latter (Hull-White or JCIR++) is a simple but yet efficient solution that is widely used by both academics and practitioners. However, the shift approach is often not appropriate when positivity is required, which is a common constraint when dealing with credit spreads or default intensities. In this paper, we tackle this problem by adopting a time change approach. On the top of providing an elegant solution to the calibration problem under positivity constraint, our model features additional interesting properties in terms of implied volatilities. It is compared to the shift extension on various credit risk applications such as credit default swap, credit default swaption and credit valuation adjustment under wrong-way risk. The time change approach is able to generate much larger volatility and covariance effects under the positivity constraint. Our model offers an appealing alternative to the shift in such cases. Comment: 44 pages, figures and tables
arXiv.org e-Print Ar... arrow_drop_down arXiv.org e-Print ArchiveOther literature type . Preprint . 2019Data sources: arXiv.org e-Print ArchiveMathematical FinanceArticle . 2022 . Peer-reviewedLicense: Wiley Online Library User AgreementData sources: Crossrefadd ClaimPlease grant OpenAIRE to access and update your ORCID works.This Research product is the result of merged Research products in OpenAIRE.
You have already added works in your ORCID record related to the merged Research product.This Research product is the result of merged Research products in OpenAIRE.
You have already added works in your ORCID record related to the merged Research product.All Research productsarrow_drop_down <script type="text/javascript"> <!-- document.write('<div id="oa_widget"></div>'); document.write('<script type="text/javascript" src="https://www.openaire.eu/index.php?option=com_openaire&view=widget&format=raw&projectId=10.2139/ssrn.3366800&type=result"></script>'); --> </script>
For further information contact us at helpdesk@openaire.euAccess RoutesGreen bronze 0 citations 0 popularity Average influence Average impulse Average Powered by BIP!more_vert arXiv.org e-Print Ar... arrow_drop_down arXiv.org e-Print ArchiveOther literature type . Preprint . 2019Data sources: arXiv.org e-Print ArchiveMathematical FinanceArticle . 2022 . Peer-reviewedLicense: Wiley Online Library User AgreementData sources: Crossrefadd ClaimPlease grant OpenAIRE to access and update your ORCID works.This Research product is the result of merged Research products in OpenAIRE.
You have already added works in your ORCID record related to the merged Research product.This Research product is the result of merged Research products in OpenAIRE.
You have already added works in your ORCID record related to the merged Research product.All Research productsarrow_drop_down <script type="text/javascript"> <!-- document.write('<div id="oa_widget"></div>'); document.write('<script type="text/javascript" src="https://www.openaire.eu/index.php?option=com_openaire&view=widget&format=raw&projectId=10.2139/ssrn.3366800&type=result"></script>'); --> </script>
For further information contact us at helpdesk@openaire.eu