In this paper we propose a new methodology to enhance the discriminatory power of backtesting for counterparty credit risk (CCR) by effectively removing strong autocorrelation in overlapping data. It is assessed by the benchmark result of non-overlapping backtesting data with the same number of...

The paper includes our recent findings on the backtesting for the EPE model to obtain the internal-model method approval. The challenge on the EPE backtesting is to obtain the statistical appealing threshold for overlapping horizons. We obtain the empirical thresholds using the random number...

In this article we introduce a new framework for counterparty risk model backtesting based on Bayesian methods. This provides a conceptually sound approach for analyzing model performance which is also straightforward to implement. We show that our methodology provides important advantages over...

"In this paper the behaviour of credit default swaps (CDS) are analysed for a sample of firms and support found for the theoretical equivalence of CDS prices and credit spreads. When this is violated, the CDS price can be viewed as an upper bound on the price of credit risk, while the spread...

A common feature of financial time series is their strong persistence. Yet, long memory may just be the spurious effect of either structural breaks or slow switching regimes. So far, five testing procedures have been proposed to distinguish between true and spurious long memory. The tests are...

This study is motivated by the development of credit-related instruments and signals of stock price movements of large banks during the recent financial crisis. What is common to most of the empirical studies in this field is that they concentrate on modeling the conditional mean. However,...