Modeling Defaultable Bonds With Mean-Reverting Log-Normal Spread: A Quasi Closed-Form Solution.

Elsa Cortina

Abstract


In this paper we describe a two factor model for a defaultable discount bond, assuming
a mean reverting log-normal dynamics with bounded volatility for the instantaneous short rate spread.
Under some simplifying assumptions we obtain an explicit solution for zero recovery in terms of the
confluent hypergeometric functions.

Full Text:

PDF



Asociación Argentina de Mecánica Computacional
Güemes 3450
S3000GLN Santa Fe, Argentina
Phone: 54-342-4511594 / 4511595 Int. 1006
Fax: 54-342-4511169
E-mail: amca(at)santafe-conicet.gov.ar
ISSN 2591-3522