Tuesday, March 15th @ 12:30-2:00 PM (1011 Evans Hall)
A Credit Risk Framework With Jumps and Stochastic Volatility
Alec Kercheval, Florida State University
The jump threshold perspective is a view of credit risk in which the event of default corresponds to the first time a stock's log price experiences a downward jump exceeding a certain threshold size. We will describe and motivate this perspective and show that we may obtain explicit formulas for default probabilities and credit default swaps, even when the stock has stochastic volatility, the interest rate is stochastic, and the default threshold is a non-constant stochastic process. This talk is based on joint work with Pierre Garreau and Chun-Yuan Chiu.