Fouque, Jean-Pierre; Sircar, Ronnie; Sølna, Knut - In: Applied Mathematical Finance 13 (2006) 3, pp. 215-244
This paper studies the effect of introducing stochastic volatility in the first-passage structural approach to default risk. The impact of volatility time scales on the yield spread curve is analyzed. In particular it is shown that the presence of a short time scale in the volatility raises the...