TY - JOUR
T1 - Structural credit risk models with Lévy processes
T2 - the VG and NIG cases
AU - Brambilla, Chiara
AU - Gurny, Martin
AU - Lozza, Sergio Ortobelli
PY - 2015
Y1 - 2015
N2 - 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.
AB - 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.
KW - Credit risk
KW - Default probabilities
KW - Lévy processes
KW - Structural models
UR - http://www.scopus.com/inward/record.url?scp=84928346867&partnerID=8YFLogxK
U2 - 10.17654/FJMSMay2015_101_119
DO - 10.17654/FJMSMay2015_101_119
M3 - Article
AN - SCOPUS:84928346867
SN - 0972-0871
VL - 97
SP - 101
EP - 119
JO - Far East Journal of Mathematical Sciences
JF - Far East Journal of Mathematical Sciences
IS - 1
ER -