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- Title
Structural Default Modeling: A Hybrid Based Approach.
- Authors
JABBOUR, GEORGE M; YU, SHUJUN (KEN); KRAMIN, MARAT V; YOUNG, STEPHEN D
- Abstract
In this article, the authors present a hybrid structural default model that is a discrete-time, lattice-based approach that combines elements of the firm-value and first-passage approaches and allows for complex capital structures and a barrier. The lattice described allows for jumps in the evolution of the asset value, and using a combination of backward recursion and forward induction, one may calculate firm values and a full term structure of unconditional and conditional survival and default probability measures in a computationally efficient manner. Many extant approaches are specific cases of the lattice presented, which provides for a flexible framework in which to incorporate elements of the firm-value and first-passage approaches.
- Subjects
ENTERPRISE value; MERTON Model; MATHEMATICAL models of business failures; CREDIT management; INTEREST rates
- Publication
Journal of Fixed Income, 2014, Vol 23, Issue 4, p33
- ISSN
1059-8596
- Publication type
Article
- DOI
10.3905/jfi.2014.23.4.033