Distance-to-default is a remarkably robust measure for ranking firms according to their risk of default. The ranking seems to work despite the fact that the Merton model from which the measure is derived produces default probabilities that are far too small when applied to real data. We use...

A practical implementation of constant proportion portfolio insurance (CPPI) strategies must inevitably take market frictions into account. I study a CPPI in a setting with trading costs, fees and borrowing restrictions, and relax the assumption of continuous portfolio rebalancing. The main...

Constant Proportion Debt Obligations (CPDOs) are structured credit derivatives indexed on a portfolio of investment grade debt, which generate high coupon payments by dynamically leveraging a position in an underlying portfolio of index default swaps. CPDO coupons and principal notes received...

In this paper the empirical performance of alternative models for barrier option valuation and risk management is studied. Five commonly used models are compared: the Black-Scholes model, the constant elasticity of variance model, the Heston stochastic volatility model, the Merton jump-diffusion...

Credit risk is today one of the most intensely studied topics in quantitative finance. This book provides an introduction and overview for readers who seek an up-to-date reference to the central problems of the field and to the tools currently used to analyze them. The book is aimed at...