Journal of Computational Finance
ISSN:
1460-1559 (print)
1755-2850 (online)
Editor-in-chief: Christoph Reisinger
An application to credit risk of a hybrid Monte Carlo–optimal quantization method
Giorgia Callegaro and Abass Sagna
Abstract
ABSTRACT
In this paper, we use a hybrid Monte Carlo-optimal quantization method to approximate the conditional survival probabilities of a firm, given a structural model for its credit default, under partial information. We are interested in the computation of the conditional survival probabilities of the firm given the "investor's information". As an application, we analyze the shape of the credit spread curve for zero-coupon bonds in two examples. Calibration to available market data is also analyzed.
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