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Choroś, Barbara; Härdle, Wolfgang Karl; Okhrin, Ostap - 2009

Modelling portfolio credit risk is one of the crucial challenges faced by financial services industry in the last few years. We propose the valuation model of collateralized debt obligations (CDO) based on copula functions with up to three parameters, with default intensities estimated from...

Persistent link: https://www.econbiz.de/10010274189

Numerics of implied binomial trees

Härdle, Wolfgang Karl; Myšičková, Alena - 2008

Market option prices in last 20 years confirmed deviations from the Black and Scholes (BS) models assumptions, especially on the BS implied volatility. Implied binomial trees (IBT) models capture the variations of the implied volatility known as volatility smile. They provide a discrete...

Persistent link: https://www.econbiz.de/10010275907

Imperfect predictability and mutual fund dynamics. How managers use predictors in changing systematic risk.

Amisano, Gianni; Savona, Roberto - 2008

Suppose a fund manager uses predictors in changing port-folio allocations over time. How does predictability translate into portfolio decisions? To answer this question we derive a new model within the Bayesian framework, where managers are assumed to modulate the systematic risk in part by...

Persistent link: https://www.econbiz.de/10011604927

Trading the bond-CDS basis: The role of credit risk and liquidity

Trapp, Monika - 2009

We analyze trading opportunities that arise from differences between the bond and the CDS market. By simultaneously … entering a position in a CDS contract and the underlying bond, traders can build a default-risk free position that allows them … to repeatedly earn the difference between the bond asset swap spread and the CDS, known as the basis. We show that the …

Persistent link: https://www.econbiz.de/10010302537

Correlation between intensity and recovery in credit risk models

Gaspar, Raquel M.; Slinko, Irina - 2005

We start by presenting a reduced-form multiple default type of model and derive abstract results on the influence of a state variable X on credit spreads, when both the intensity and the loss quota distribution are driven by X. The aim is to apply the results to a concrete real life situation,...

Persistent link: https://www.econbiz.de/10010281231

The term structure of risk premia: new evidence from the financial crisis

Berg, Tobias - 2010

This study calibrates the term structure of risk premia before and during the 2007/2008 financial crisis using a new calibration approach based on credit default swaps. The risk premium term structure was flat before the crisis and downward sloping during the crisis. The instantaneous risk...

Persistent link: https://www.econbiz.de/10011605211

The valuation of corporate liabilities: Theory and tests

Ericsson, Jan; Reneby, Joel - 2001

We develop a structural bond pricing approach and implement it on a large panel of US industrial bonds using an … form models. Furthermore, our analysis provide evidence that bond yield spreads incorporate a substantial liquidity …

Persistent link: https://www.econbiz.de/10010281391

Recent Developments in Financial Economics and Econometrics: An Overview

Chang, Chia-Lin; Allen, David; McAleer, Michael - 2013

, with evidence from listed firms in Taiwan, pricing options on stocks denominated in different currencies, with theory and …

Persistent link: https://www.econbiz.de/10010326212

Quadratic models for portfolio credit risk with shot-noise effects

Gaspar, Raquel M.; Schmidt, Thorsten - 2005

in credit risk modeling: risk-free bond prices, defaultable bond prices (with and without stochastic recovery) and …

Persistent link: https://www.econbiz.de/10010281181

The pricing of correlated default risk: evidence from the credit derivatives market

Zhu, Haibin; Tarashev, Nikola A. - 2008

In order to analyze the pricing of portfolio credit risk – as revealed by tranche spreads of a popular credit default swap (CDS) index – we extract risk-neutral probabilities of default (PDs) and physical asset return correlations from single-name CDS spreads. The time profile and overall...

Persistent link: https://www.econbiz.de/10010295946