An Extension to the Jarrow, Lando, Turnbull Model for Credit Spreads
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Document ID: 2001-83 (previously 2001/003)
Published on: 1st January 2001
Author: Phil Mowbray
The JLT credit model describes credit spreads in terms of a historical transition matrix a "credit risk premium" parameter, and an assumption about recovery in the event of default. One of the key assumptions is that the credit risk premium moves in a deterministic manner, but this is unrealistic. Within the B&H ESG we have implemented a 'JLT+' model in which the credit risk premium follows a stochastic procsss. This note provides a technical description of this model and discusses calibration.
