A Markov Regime‐Switching Marked Point Process for Short‐Rate Analysis with Credit Risk | Zendy

Tak Kuen Siu | Zendy

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A Markov Regime‐Switching Marked Point Process for Short‐Rate Analysis with Credit Risk

Author(s) -

Tak Kuen Siu

Publication year - 2010

Publication title -

international journal of stochastic analysis

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 0.19

H-Index - 28

eISSN - 2090-3340

pISSN - 2090-3332

DOI - 10.1155/2010/870516

Subject(s) - markov chain , bounded function , credit risk , mathematics , markov process , credit spread (options) , stochastic discount factor , point process , credit rating , econometrics , point (geometry) , interest rate , measure (data warehouse) , kernel (algebra) , actuarial science , economics , statistics , finance , computer science , discrete mathematics , mathematical analysis , capital asset pricing model , geometry , database

We investigate a Markov, regime-switching, marked point process for the short-terminterest rate in a market. The intensity of the marked point process is abounded, predictable process and is modulated by two observable factors. One isan economic factor described by a diffusion process, and another one is describedby a Markov chain. The states of the chain are interpreted as different ratingcategories of corporate credit ratings issued by rating agencies. We consider ageneral pricing kernel which can explicitly price economic, market, and creditrisks. It is shown that the price of a pure discount bond satisfies a system ofcoupled partial differential-integral equations under a risk-adjusted measure

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