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Homogeneous semi-Markov reliability models for credit risk management. (English) Zbl 1125.91341

Summary: The credit risk problem is one of the most important issues of modern financial mathematics. Fundamentally it consists in computing the default probability of a company going into debt. The problem can be studied by means of Markov transition models. The generalization of the transition models by means of homogeneous semi-Markov models is presented in this paper. The idea is to consider the credit risk problem as a reliability problem. In a semi-Markov environment it is possible to consider transition probabilities that change as a function of waiting time inside a state. The paper also shows how to apply semi-Markov reliability models in a credit risk environment. In the last section an example of the model is provided.

MSC:

91G40 Credit risk
60K15 Markov renewal processes, semi-Markov processes
60K20 Applications of Markov renewal processes (reliability, queueing networks, etc.)
90B25 Reliability, availability, maintenance, inspection in operations research
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