Rating Based Lévy Libor Model

  title={Rating Based Lévy Libor Model},
  author={Ernst Eberlein},
In this paper we consider modeling of credit risk within the Libor market models. We extend the classical definition of the defaultfree forward Libor rate and develop the rating based Libor market model to cover defaultable bonds with credit ratings. As driving processes for the dynamics of the default-free and the pre-default term structure of Libor rates time-inhomogeneous Lévy processes are used. Credit migration is modeled by a conditional Markov chain, whose properties are preserved under… CONTINUE READING