We consider the filtering model of Frey & Schmidt (2012) stated under the real probability measure and develop a method for estimating the parameters in this framework by using time-series data of CDS index spreads and classical maximum-likelihood algorithms. The estimation-approach incorporates...

Following the method of Pesaran, Shin and Smith (1999), this study extends the results of Sun, Lin and Nieh (2007) to investigate the risk diversification issue of individual corporate bonds in portfolios. This is one of the few studies on the decomposition of individual corporate yield spreads....

This paper develops an empirical procedure for analyzing the impact of model misspecification and calibration errors on measures of portfolio credit risk. When applied to large simulated portfolios with realistic characteristics, this procedure reveals that violations of key assumptions of the...

The new structural model of credit risk based on a normal firm value diffusion process can infer the firm value volatility from bank credit spreads that closely agreeing with the empirically estimated firm value volatility. We use the spread-implied firm value volatility as the model volatility...

Central bank lending to commercial banks is typically collateralized which reduces central bank's credit risk exposure to “double default events” when the counterparty and the issuer of the underlying collateral asset both default in a short period of time. This paper presents a simple model...

We present a simple procedure to construct credit curves by bootstrapping a hazard rate curve from observed CDS spreads. The hazard rate is assumed constant between subsequent CDS maturities. In order to link survival probabilities to market spreads, we use the JP Morgan model, a common market...

The purpose of this paper is introducing rigorous methods and formulas for bilateral counterparty risk credit valuation adjustments (CVA's) on interest-rate portfolios. In doing so, we summarize the general arbitrage-free valuation framework for counterparty risk adjustments in presence of...

This paper studies the discriminatory power and calibration quality of the structural credit risk models under the 'exogenous default boundary' approach including those proposed by Longstaff and Schwartz (1995) and Collin-Dufresne and Goldstein (2001), and 'endogenous default boundary' approach...

As observed in the financial crisis, CDS spreads tend to increase simutaneously as a reaction to common shocks. Focusing on the spillover effects triggered by extreme events, we propose a credit risk analysis tool by applying credit default swap spread returns to the concept of 4CoVaR suggested...

Central bank lending to commercial banks is typically collateralized which reduces central bank's credit risk exposure to “double default events” when the counterparty and the issuer of the underlying collateral asset both default in a short period of time. This paper presents a simple model...