Currency total return swaps (CTRS) are hybrid derivatives instruments that allow to simultaneously hedge against credit and currency risks. We develop a structural credit risk model to evaluate CTRS premia. Empirical test on a sample of 23,005 price observations from 59 underlying issuers yields...

This paper applies regression analysis to investigate the fundamental factors of the variation of CDS index tranches. The sample comprises daily data on the tranche premia of the European iTraxx and North American CDX index from the start of the market in summer 2004 to January 2008. I estimate...

The theory of pricing to acceptability developed for incomplete markets by Cherny and Madan (2009b) is applied to marking ones own default risk. It is observed in agreement with Heckman (2004), that assets and liabilities are not to be priced under fair value accounting principles at the same...

We study the valuation of contingent credit default swaps (C-CDS) where the underlying is an interest rate swap and swap rate follows a diffusion process with a one-time jump at default. Our method extends the standard Black (1976) model for interest rate swaption to (1) swaption expires at a...

In the first part we consider a dynamical model for the number of defaults of a pool of names. The model is based on the notion of generalized Poisson process, allowing for more than one default in small time intervals, contrary to many alternative approaches to loss modeling. We illustrate how...

We exploit emerging market sovereign CDS spreads to examine the reaction of sovereign credit risk to changes in country-specific and global financial factors. Utilizing a VAR model fitted with DCC GARCH, we find that comovements of spreads generally exhibit significant time-varying correlations,...

Supervisory stress testing to date has focused on the resiliency of large banks to withstand the direct effects of a credit shock. Using data from Depository Trust & Clearing Corporation (DTCC), we apply the Federal Reserve's Comprehensive Capital Analysis and Review (CCAR) supervisory scenarios...

In this article, we propose an equilibrium pricing rule for the contingent claims by applying the economic premium principle initiated by Buhlmann (1980). The derivative markets in our model are over-the-counter (OTC) markets and have counterparty risks. We reconstruct the economic premium...

This paper measures the connectedness in European Economic and Monetary Union (EMU) sovereign and bank CDS between April 2008 and December 2014, in order to understand the transmission of stress during the euro crisis. To this end, we perform a connectedness analysis using the framework proposed...

When dealing with multi-issuer credit derivatives such as CDO, it is customary to refer the reader to either of two approaches: “static models” which focus on the copula between the variables of interest, and “dynamic models” where the diffusion of the underlying variables is described...