Default Times in a Continuous Time Markov Chain Economy |
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| Authors: | Robert J Elliott |
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| Institution: | 1. School of Mathematics, University of Adelaide, Adelaide, Australia;2. Haskayne School of Business, University of Calgary, Calgary, Canada |
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| Abstract: | AbstractA continuous time financial market is considered where randomness is modelled by a finite state Markov chain. Using the chain, a stochastic discount factor is defined. The probability distributions of default times are shown to be given by solutions of a system of coupled partial differential equations. |
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| Keywords: | Continuous time Markov chain default time stochastic discount function credit risk |
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