We suggest an empirical model of investment strategy returns which elucidates the importance of non-Gaussian features, such as time-varying volatility, asymmetry and fat tails, in explaining the level of expected returns. Estimating the model on the (former) Lehman Brothers Hedge Fund Index...

We give a comprehensive review of credit term structure modeling methodologies. The conventional approach to modeling credit term structure is summarized and shown to be equivalent to a particular type of the reduced form credit risk model, the fractional recovery of market value approach. We...

We present a continuous-time maximum likelihood estimation methodology for credit rating transition probabilities, taking into account the presence of censored data. We perform rolling estimates of the transition matrices with exponential time weighting with varying horizons and discuss the...

In the second part of our series, we suggest new definitions of credit bond duration and convexity that remain consistent across all levels of credit quality including deeply distressed bonds and introduce additional risk measures that are consistent with the survival-based valuation framework....

In the third part of this series, we introduce consistent relative value measures for CDS-Bond basis trades using the bond-implied CDS term structure derived from fitted survival rate curves. We explain why this measure is better than the traditionally used Z-spread or Libor OAS and offer...

In this three-part series of papers, we argue that the conventional spread measures are not well defined for credit-risky bonds and introduce a set of credit term structures which correct for the biases associated with the strippable cash flow valuation assumption. We demonstrate that the...