Stability of traveling wave solutions in a credit rating migration Free Boundary Problem
Abstract
In this paper, we study the stability of traveling wave solutions arising from a credit rating migration problem with a free boundary, After some transformations, we turn the Free Boundary Problem into a fully nonlinear parabolic problem on a fixed domain and establish a rigorous stability analysis of the equilibrium in an exponentially weighted function space. It implies the convergence of the discounted value of bonds that stands as an attenuated traveling wave solution.
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