2009/09/22 by Jacek Jakubowski, Jakubowski, Jacek, Mariusz Niewęgłowski +2
Economics, Econometrics and Finance · #Computational Finance (q-fin.CP) #Credit Risk and Financial Regulations #FOS: Economics and business #Financial Markets and Investment Strategies #Stochastic processes and financial applications #q-fin.CP
paper · pdf · doi:10.48550/arxiv.0909.4089
24 pages
arxiv created 2009/09/22 · openalex publication_date 2009/09/22 · arxiv updated 2009/12/01 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28
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.