An application to credit risk of a hybrid Monte Carlo-Optimal quantization method

Abstract : In this paper we use a hybrid Monte Carlo-Optimal quantization method to approximate the conditional survival probabilities of a firm, given a structural model for its credit defaul, under partial information. We consider the case when the firm's value is a non-observable stochastic process $(V_t)_{t \geq 0}$ and inverstors in the market have access to a process $(S_t)_{t \geq 0}$, whose value at each time t is related to $(V_s, s \leq t)$. We are interested in the computation of the conditional survival probabilities of the firm given the "investor information". As a application, we analyse the shape of the credit spread curve for zero coupon bonds in two examples.
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Submitted on : Friday, July 3, 2009 - 4:22:09 PM
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  • HAL Id : hal-00400666, version 1
  • ARXIV : 0907.0645

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Giorgia Callegaro, Abass Sagna. An application to credit risk of a hybrid Monte Carlo-Optimal quantization method. 22 pages. 2009. <hal-00400666>

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