Tempered stable structural model in pricing credit spread and credit default swap

IF 0.7 4区经济学 Q4 BUSINESS, FINANCE

Review of Derivatives Research Pub Date : 2017-07-05 DOI:10.1007/s11147-017-9135-5

Sung Ik Kim, Young Shin Kim

引用次数: 0

Abstract

In this paper, we explore the features of a structural credit risk model wherein the firm value is driven by normal tempered stable (NTS) process belonging to the larger class of Lévy processes. For the purpose of comparability, the calibration to the term structure of a corporate bond credit spread is conducted under both NTS structural model and Merton structural model. We find that NTS structural model provides better fit for all credit ratings than Merton structural model. However, it is noticed that probabilities of default derived from the calibration of the term structure of a bond credit spread might be overestimated since the bond credit spread could contain non-default components such as illiquidity risk or asymmetric tax treatment. Hence, considering CDS spread as a reflection of the pure credit risk for the reference entity, we calibrate it in order to obtain more reasonable probability of default and obtain valid results in calibration of the market CDS spread with NTS structural model.

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信用利差和信用违约掉期定价中的阶跃稳定结构模型

在本文中，我们探讨了一个结构性信用风险模型的特点，在该模型中，公司价值由属于较大类列维过程的正态节制稳定（NTS）过程驱动。为了便于比较，我们在 NTS 结构模型和默顿结构模型下对公司债券信用利差的期限结构进行了校准。我们发现，NTS 结构模型比 Merton 结构模型更适合所有信用等级。然而，我们注意到，由于债券信用利差可能包含非违约成分，如流动性不足风险或不对称税收待遇，因此校准债券信用利差期限结构得出的违约概率可能会被高估。因此，考虑到 CDS 利差反映了参考实体的纯信用风险，我们对其进行校准，以获得更合理的违约概率，并在使用 NTS 结构模型校准市场 CDS 利差时获得有效结果。

本文章由计算机程序翻译，如有差异，请以英文原文为准。

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来源期刊

Review of Derivatives Research Multiple-

CiteScore

1.40

自引率

0.00%

发文量

期刊介绍： The proliferation of derivative assets during the past two decades is unprecedented. With this growth in derivatives comes the need for financial institutions, institutional investors, and corporations to use sophisticated quantitative techniques to take full advantage of the spectrum of these new financial instruments. Academic research has significantly contributed to our understanding of derivative assets and markets. The growth of derivative asset markets has been accompanied by a commensurate growth in the volume of scientific research. The Review of Derivatives Research provides an international forum for researchers involved in the general areas of derivative assets. The Review publishes high-quality articles dealing with the pricing and hedging of derivative assets on any underlying asset (commodity, interest rate, currency, equity, real estate, traded or non-traded, etc.). Specific topics include but are not limited to: econometric analyses of derivative markets (efficiency, anomalies, performance, etc.) analysis of swap markets market microstructure and volatility issues regulatory and taxation issues credit risk new areas of applications such as corporate finance (capital budgeting, debt innovations), international trade (tariffs and quotas), banking and insurance (embedded options, asset-liability management) risk-sharing issues and the design of optimal derivative securities risk management, management and control valuation and analysis of the options embedded in capital projects valuation and hedging of exotic options new areas for further development (i.e. natural resources, environmental economics. The Review has a double-blind refereeing process. In contrast to the delays in the decision making and publication processes of many current journals, the Review will provide authors with an initial decision within nine weeks of receipt of the manuscript and a goal of publication within six months after acceptance. Finally, a section of the journal is available for rapid publication on `hot'' issues in the market, small technical pieces, and timely essays related to pending legislation and policy. Officially cited as: Rev Deriv Res