This paper presents a framework in which many structural credit risk models can be made hybrid by randomizing the default trigger, while keeping the capital structure intact. This produces random recovery rates negatively correlated with the default probability. The approach is implemented on a...

LMM (LIBOR Market Model) (Brace, Gatarek, & Musiela, 1997) was unquestionably a major breakthrough in financial engineering, for the fact that it manages to unite two liquid yet segregated fixed income markets (caps and swaptions) under one single rigorous term structure setup. Yet it is far...