主 题: Randomized Merton Model on Credit Spreads
报告人: Dr. Chuang Yi (Department of Mathematics and Statistics)
时 间: 2008-01-11 下午 3:00 - 4:00
地 点: 理科一号楼 1479
W
e propose to randomize the initial condition of a
generalized Merton model, where the solvency ratio instead of the asset value
is modeled explicitly. This randomization of the initial value is due to
imperfect observation assumption of the underlying process. We find that
positive short spreads can be produced due to imperfect observation on the
risk factor. The PD and LGD have explicit expressions which both are found to
approach to zero with an order of square-root of the maturity $T$, as $T\\to
+0$. We therefore provide an example that has no well-defined default
intensity but still admits positive short spreads. Our simple four-parameter
set up is easy to be implemented and calibrated to the market data. This is
illustrated by a calibration exercise on Ford Corp. CDS data.
