We propose a model and an estimation technique to distinguish systemic risk and contagion in credit risk. The main idea is to assume, for a set of $d$ obligors, a set of $d$ idiosyncratic shocks and a shock that triggers the default of all them. All shocks are assumed to be linked by a...

We propose a new index for measuring the systemic risk of default of the banking sector, which is based on a homogeneous version of multivariate intensity based models (Cuadras – Augé distribution). We compute the index for 10 European countries, exploiting the information incorporated in the...

Recent literature has pointed out that information asymmetries may be the reason for the poor performance of structural credit risk models to fit corporate bond data. It is well known in fact that these models lead to a strong understatement of the credit spread terms structure, particularly on...

Recent literature has pointed out that information asymmetries may be the reason for the poor performance of structural credit risk models to fit corporate bond data. It is well known in fact that these models lead to a strong understatement of the credit spread terms structure, particularly on...

We apply copula functions to evaluate counterpart risk in swap transactions. Using copulas allows to generalise the approach proposed by Sorensen and Bollier (1994), allowing for dependence between swap rates and counterparty default. Counterpart risk is represented by a sequence of vulnerable...

In this paper we apply a copula function pricing technique to the evaluation of credit derivatives, namely a vulnerable default put option and a credit switch. Also in this case, copulas enable to separate the specification of marginal default probabilities from their dependence structure. Their...

In this paper we apply a copula function pricing technique to the evaluation of vulnerable options, i.e. options with counterpart risk. Using copulas enables to separate the specification of marginal distributions and the dependence structure of the events of exercise of the option and default...

In this paper we suggest the adoption of copula functions in order to price multivariate contingent claims. Copulas enable us to imbed the marginal distributions extracted from vertical spreads in the options markets in a multivariate pricing kernel. We prove that such kernel is a copula...

Recent literature has pointed out that information asymmetries may be the reason for the poor performance of structural credit risk models to fit corporate bond data. It is well known in fact that these models lead to a strong understatement of the credit spread terms structure, particularly on...

We generalize the Kelly criterion and the growth-optimal portfolio (GOP) concept beyond log-wealth maximization. We show that models of speculative price dynamics with time change require different compounding algebras leading to GOPs that do not coincide with log-wealth maximization. In...