Vs. Lai et M. Gendron, ON FINANCIAL GUARANTEE INSURANCE UNDER STOCHASTIC INTEREST-RATES, Geneva papers on risk and insurance. Theory, 19(2), 1994, pp. 119-137
We extend the financial guarantee insurance literature by modeling, un
der stochastic interest rates, private financial guarantees when the g
uarantor potentially defaults. By performing numerical simulations und
er plausible parameters values, we characterize the differential impac
t of the incorporation of stochasticity of interest rates on the valua
tion of both public and private guarantees.