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- Title
On the Default Probability in a Regime-Switching Regulated Market.
- Authors
Bo, Lijun; Wang, Yongjin; Yang, Xuewei
- Abstract
This paper considers asset dynamics in a regulated (controlled) market, where the macroeconomic environment is taken into account. A regime-switching reflected stochastic process with two-sided barriers is proposed for modeling asset price dynamics. We study a default problem with the default time being defined as the first passage time of the price dynamics. By solving a pair of interacting ordinary differential equations (ODEs), we obtain an explicit formula for the Laplace transform (LT) of the default time. Some numerical results are given for illustration.
- Subjects
PROBABILITY theory; LAPLACE distribution; MACROECONOMICS; DIFFERENTIAL equations; NUMERICAL analysis; STOCHASTIC analysis
- Publication
Methodology & Computing in Applied Probability, 2014, Vol 16, Issue 1, p101
- ISSN
1387-5841
- Publication type
Article
- DOI
10.1007/s11009-012-9301-z