R***m
发帖数: 24 | 1 I could't get a response from wilmott forum so I decided to give it a try
here. Any idea is appreciated!
I started to look at modeling both default free and defaultable items (rates
, bond, etc.) in the same framework. After reading Schonbucher (2000) "A
Libor Market Model with Default Risk" it appears that if I pick defaultable
bond as the numeraire both default free and defaultable forward rates follow
nice lognormal processes. However once the numeraire defaults under a
certain path will I be able to continue the diffusion process for default
free items (forwards, default free bonds, etc.)? Or does all simulation have
to stop upon the numeraire's default?
If the latter then how can we simulate both default free and defaultable
instruments in the same framework without losing the ability to project
default free instruments further beyond the default event?
Thanks! |
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