This paper proposes a simple approach to infer the risk neutral density of recovery rates implied by the prices of the debt securities of a firm. The proposed approach is independent of modeling default arrival rates and allows for the violation of absolute priority rule (APR). The paper...

From a credit risk perspective, little is known about the distress factors - economy-wide or firm-specific - that are important in explaining variations in defaultable coupon yields. This paper proposes and empirically tests a family of credit risk models. Empirically, we find that firm-specific...

This paper proposes a simple approach to infer the risk neutral density of recovery rates implied by the prices of the debt securities of a firm. The proposed approach is independent of modeling default arrival rates and allows for the violation of absolute priority rule (APR). The paper...

This paper proposes a simple approach to estimate the implied recovery rates embedded in the prices of the debt securities of a firm that differ in priority at time of default. The approach allows for a complex capital structure setting assuming that the absolute priority rule (APR) can be...

This paper proposes a two-factor hazard rate model, in closed form, to price risky debt. The likelihood of default is captured by the firm's non-interest sensitive assets and default-free interest rates. The distinguishing features of the model are threefold. First, the impact of capital...

This paper models default risk as composed of arrival and magnitude risks. In our model the two default components are explicitly priced as if they were traded in the futures market and the spot price of risky debt is derived as a consequence. We develop estimation strategies to evaluate the...

This paper tests the approach of Madan and Milne (1994) and its extension in Abken, Madan, and Ramamurtie (1996) for pricing contingent claims as elements of a separable Hilbert space. We specialize the Hilbert space basis to the family of Hermite polynomials and test the model on Samp;P 500...

This paper proposes and empirically investigates a family of credit risk models driven by a two-factor structure for the short-interest rate and an additional third factor for firm-specific distress, using the reduced-form framework of Duffie and Singleton (1999). The set of firm-specific...

How do risk-neutral return skews evolve over time and in the cross-section of individual stocks? We document the differential pricing of individual equity options versus the market index, and relate it to variations in the skew. The change-of-measure induced by marginal-utility tilting of the...

This paper proposes a methodology for the valuation of contingent securities. In particular, it establishes how the characteristic function (of the future uncertainty) is basis augmenting and spans the payoff universe of most, if not all, derivative assets. In one specific application, from the...