Recently there has been some interest in the credit risk literature in models which involve stopping times related to excursions. The classical Black-Scholes-Merton-Cox approach postulates that default may occur, either at or before maturity, when the firm's value process falls below a critical...

In this paper we compare market prices of credit default swaps with model prices. We show that a simple reduced form model with a constant recovery rate outperforms the market practice of directly comparing bonds' credit spreads to default swap premiums. We find that the model works well for...

In this paper, we develop a generalized affine model to characterize correlated credit risk of multi-firms. When valuing credit derivatives, this new approach allows to incorporate correlative market and credit risk, interdependent default risk structure and counterparty risk into consideration....

Credit risk models like Moody’s KMV are now well established in the market and give bond managers reliable estimates of default probabilities for individual firms. Until now it has been hard to relate those probabilities to the actual credit spreads observed on the market for corporate bonds....

We derive discrete markov chain approximations for continuous state equilibrium term structure models. The states and transition probabilities of the markov chain are chosen effciently according to a quadrature rule as in Tauchen and Hussey (1991). Quadrature provides a simple yet method which...

We consider a generic framework for generating likelihood ratio weighted Monte Carlo simulation paths, where we use one simulation scheme K° (proxy scheme) to generate realizations and then reinterpret them as realizations of another scheme K* (target scheme) by adjusting measure (via...

This paper identifies such fundamental characteristics as the lack of ergodicity, stationarity, and independence, and it identifies the degree of initial persistence of the Chinese stock markets when they were more regulated. The index series are from the Shanghai (SHI) stock market and Shenzhen...

The multifractal model of asset returns captures the volatility persistence of many financial time series. Its multifractal spectrum computed from wavelet modulus maxima lines provides the spectrum of irregularities in the distribution of market returns over time and thereby of the kind of...

In this paper we investigate the so called foresight bias that may appear in the Monte-Carlo pricing of Bermudan and compound options if the exercise criteria is calculated by the same Monte-Carlo simulation as the exercise values. The standard approach to remove the foresight bias is to use two...

This note derives new expressions for the moments of the average of values taken by Wiener paths at an arbitrary number, N, of discrete times. The expressions are closed summations, which entail only the N-th powers of, and the successive differences between, the moments of the lognormal finite...