In this paper, we present a model to describe the evolution of the yield spread by considering the rating evaluation as the determinant of credit spreads. The underlying rating migration process is assumed to be a non-homogeneous discrete time semi-Markov process. We calculate the total sum of mean basis points paid within any given time interval. From this information we show how it is possible to extract the time evolution of expected interest rates and discount factors.
A non-homogeneous semi-Markov reward model for the credit spread computation / Guglielmo, D'Amico; Jacques, Janssen; Manca, Raimondo. - In: INTERNATIONAL JOURNAL OF THEORETICAL AND APPLIED FINANCE. - ISSN 0219-0249. - STAMPA. - 14:02(2011), pp. 221-238. [10.1142/s0219024911006346]
A non-homogeneous semi-Markov reward model for the credit spread computation
MANCA, Raimondo
2011
Abstract
In this paper, we present a model to describe the evolution of the yield spread by considering the rating evaluation as the determinant of credit spreads. The underlying rating migration process is assumed to be a non-homogeneous discrete time semi-Markov process. We calculate the total sum of mean basis points paid within any given time interval. From this information we show how it is possible to extract the time evolution of expected interest rates and discount factors.I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.
