JMF  Vol.2 No.4 , November 2012
CreditGrades Framework within Stochastic Covariance Models
Abstract: In this paper we study a multivariate extension of a structural credit risk model, the CreditGrades model, under the assumption of stochastic volatility and correlation between the assets of the companies. The covariance of the assets follows two popular models which are non-overlapping extensions of the CIR model to dimensions greater than one, the Wishart process and the Principal component process. Under CreditGrades, we find quasi closed-form solutions for equity options, marginal probabilities of defaults, and some other major financial derivatives.
Cite this paper: M. Escobar, H. Arian and L. Seco, "CreditGrades Framework within Stochastic Covariance Models," Journal of Mathematical Finance, Vol. 2 No. 4, 2012, pp. 303-313. doi: 10.4236/jmf.2012.24033.

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