A new model and its numerical method to identify multi credit migration boundaries. Issue 8 (3rd August 2018)

• Record Type: Journal Article
• Authors: Wu, Yuan; Liang, Jin
• Is Part Of: International journal of computer mathematics. Volume 95:Issue 8(2018)
• Page Start: 1688
• Page End: 1702
• Publication Date: 2018-08-03
• Subjects: Credit rating migration -- credit risk -- structure model -- free boundary -- corporate bond -- firm asset value; 35K15 -- 35R05 -- 65M06 -- 91G40; Computers -- Periodicals; Numerical analysis -- Periodicals; Automation -- Periodicals; 004.0151
• DOI: 10.1080/00207160.2017.1329529
• Languages: English
• ISSNs: 0020-7160

Abstract

ABSTRACT: In this paper, valuation a corporate bond with multi credit rating migration risks is considered under the structure framework by using a free boundary model. The establishment, analysis and calculation of the model are presented. Numerical scheme, stability of the numerical algorithm and convergence order are discussed. Calibration of the parameters and numerical examples are also suggested. Furthermore, the relationship between the value function, the free boundaries and different parameters is shown and analysed.