# Affine Term-Structure Models: A Time-Changed Approach with Perfect Fit to Market Curves

@article{Mbaye2019AffineTM, title={Affine Term-Structure Models: A Time-Changed Approach with Perfect Fit to Market Curves}, author={Cheikh Mbaye and Fr{\'e}d{\'e}ric Vrins}, journal={Risk Management \& Analysis in Financial Institutions eJournal}, year={2019} }

We address the so-called calibration problem which consists of fitting in a tractable way a given model to a specified term structure like, e.g., yield or default probability curves. Time-homogeneous jump-diffusions like Vasicek or Cox-Ingersoll-Ross (possibly coupled with compounded Poisson jumps, JCIR), are tractable processes but have limited flexibility; they fail to replicate actual market curves. The deterministic shift extension of the latter (Hull-White or JCIR++) is a simple but yet…

## 2 Citations

An arbitrage-free conic martingale model with application to credit risk.

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Conic martingales refer to Brownian martingales evolving between bounds. Among other potential applications, they have been suggested for the sake of modeling conditional survival probabilities under…

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A structural model where the survival/default state is observed together with a noisy version of the firm value process makes the model more realistic than most of the existing alternatives, but triggers important challenges related to the computation of conditional default probabilities.

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