The relation between asset correlation and default probability is critical for determining bank regulatory capital requirements. It is assumed negative for sovereign, corporate and banking exposures by the Basel Committee on Banking Supervision. This article provides likelihood ratio tests for...

The revolving credit line is the dominant form of commercial bank lending. We present an arbitrage-free valuation method incorporating a borrower's stochastic credit quality and drawdown behavior. Credit exposure is measured by the size of fixed balance loan of identical term having the same...

The revolving credit line is the dominant form of commercial bank lending. We present an arbitrage-free valuation method incorporating the borrower's stochastic credit quality process and drawdown behavior. Credit exposure is measured by the size of fixed balance loan of identical term having...