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Centre of Financial Mathematics Seminar Series

February 14 @ 1:30 pm - 2:30 pm


Mesias Alfeus (School of Mathematics and Statistics, University of Wollongong)


The Term structure of Roll-Over Risk: A Gentle Calibration Approach


This talk presents simultaneous model calibration to all market instruments relevant to credit and roll-over risk. We consider a credit default swap (CDS) contract, designed to provide protection from a credit event associated with a risky bond.  We derive an analytical expression for CDS within the roll-over risk (consisting of two components, namely credit risk and pure funding liquidity risk) dynamics proposed in Alfeus, Grasselli and Schlogl (2017) and perform model calibration to the CDS spread term structures for USD LIBOR panel banks observed in the market. In addition, the model is calibrated to liquid market-quotes for OIS, vanilla Interest Rates Swaps (IRS),  Basis Swaps (BS), and interest rate caps for all available maturities. To make the calibration computationally feasible, we conduct it in several stages. As a result, we extract forward-looking information about the credit and the pure funding liquidity components from market prices of interest rates derivatives.


February 14
1:30 pm - 2:30 pm
Events Categories:


Centre for Financial Mathematics (CFM)


Building 39A Room 208
University of Wollongong
Wollongong, NSW Australia
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