Publication: Credit risk with semimartingales and risk-neutrality
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2008-11
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Abstract
A no-arbitrage framework to model interest rates with credit risk, based on the LIBOR additive
process, and an approach to price corporate bonds in incomplete markets, is presented in this
paper. We derive the no-arbitrage conditions under different conditions of recovery, and we
obtain new expressions in order to estimate the probabilities of default under risk-neutral
measure.
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Credit-risk, Semimartingales, Interest-rate modelling