We propose alternative structural credit risk models for determining probabilities of default (PDs) based on two well-known Lévy processes - the Variance Gamma (VG) process and the Normal Inverse Gaussian (NIG) process, respectively. In particular, using Lévy processes, we propose a methodology to overcome the distributional drawbacks of the classical Merton model. Therefore, we discuss an empirical comparison of estimated PDs obtained from the VG and the NIG models on a dataset of 24 companies with strong capitalization in the US market. The empirical evidence suggests that both the models are able to capture the situation of instability that affects each company in considered period and, in fact, are very sensitive to the periods of the financial crisis.

(2015). Structural credit risk models with Lévy processes: the VG and NIG cases [journal article - articolo]. In FAR EAST JOURNAL OF MATHEMATICAL SCIENCES: FJMS. Retrieved from http://hdl.handle.net/10446/49679

Structural credit risk models with Lévy processes: the VG and NIG cases

GURNY, Martin;ORTOBELLI LOZZA, Sergio
2015-01-01

Abstract

We propose alternative structural credit risk models for determining probabilities of default (PDs) based on two well-known Lévy processes - the Variance Gamma (VG) process and the Normal Inverse Gaussian (NIG) process, respectively. In particular, using Lévy processes, we propose a methodology to overcome the distributional drawbacks of the classical Merton model. Therefore, we discuss an empirical comparison of estimated PDs obtained from the VG and the NIG models on a dataset of 24 companies with strong capitalization in the US market. The empirical evidence suggests that both the models are able to capture the situation of instability that affects each company in considered period and, in fact, are very sensitive to the periods of the financial crisis.
articolo
2015
Brambilla, Chiara; Gurny, Martin; ORTOBELLI LOZZA, Sergio
(2015). Structural credit risk models with Lévy processes: the VG and NIG cases [journal article - articolo]. In FAR EAST JOURNAL OF MATHEMATICAL SCIENCES: FJMS. Retrieved from http://hdl.handle.net/10446/49679
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/10446/49679
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