Please use this identifier to cite or link to this item: http://bura.brunel.ac.uk/handle/2438/30824
Title: GENERALISED STOCHASTIC DISCOUNT FACTORS FOR FELLER PROCESSES
Keywords: finance;stochastic discount factor;affine term structure models;default intensities
Issue Date: 2025
Publisher: [s.n.]
Citation: Realdon, M. (2025) 'GENERALISED STOCHASTIC DISCOUNT FACTORS FOR FELLER PROCESSES' (in preparation)
Abstract: The stochastic discount factor of An(n) affine term structure models based on Feller processes can be generalised, while retaining tractability for valuing bonds, bond options and for survival probabilities in credit risk pricing. Bond yields and default intensities are non-linear and, under parameter restrictions, non-negative and monotonic in the Feller factors. Also bond risk premia and bond yields volatility are non-linear in the factors. The Cox-Ingersoll-Ross formula for discount bonds is generalised. The empirical evidence shows that these new models, when used for credit risk pricing, fit and predict sovereign credit default swap spreads significantly more accurately than the classic affine pricing model.
Description: JEL classification: G12; G13.
URI: https://bura.brunel.ac.uk/handle/2438/30824
Other Identifiers: ORCiD: Marco Realdon https://orcid.org/0000-0002-4160-4463
Appears in Collections:Dept of Economics and Finance Embargoed Research Papers

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