We consider the credit risk model of Collin-Dufresne and Goldstein (2001). According to this model, the price of a defaultable bond can be efficiently computed using a variational formulation that consists of an integral relation and a Volterra integral equation. In Collin- Dufresne and Goldstein (2001) this integral equation is justified by a probabilistic intuition, but is not proven formally. In this paper we analytically derive the variational formulation used in Collin- Dufresne and Goldstein (2001). This analysis allows to give a correct characterization of the solution of the integral equation. Furthermore the approach proposed in this paper could also be employed for other models of credit risk.
" On a variational formulation used in credit risk modeling".
PACELLI, GRAZIELLA
2010-01-01
Abstract
We consider the credit risk model of Collin-Dufresne and Goldstein (2001). According to this model, the price of a defaultable bond can be efficiently computed using a variational formulation that consists of an integral relation and a Volterra integral equation. In Collin- Dufresne and Goldstein (2001) this integral equation is justified by a probabilistic intuition, but is not proven formally. In this paper we analytically derive the variational formulation used in Collin- Dufresne and Goldstein (2001). This analysis allows to give a correct characterization of the solution of the integral equation. Furthermore the approach proposed in this paper could also be employed for other models of credit risk.I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.
