Defaultable bonds with an infinite number of Levy factors
A market with defaultable bonds where the bond dynamics is in a Heath-Jarrow-Morton setting and the forward rates are driven by an infinite number of Levy factors is considered. The setting includes rating migrations driven by a Markov chain. All basic types of recovery are investigated. We formulate necessary and sufficient conditions (generalized HJM conditions) under which the market is arbitrage free. Connections with consistency conditions are discussed.
Year of publication: |
2009-09
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Authors: | Jakubowski, Jacek ; Nieweglowski, Mariusz |
Institutions: | arXiv.org |
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