Basurto, Miguel A. Segoviano; Espinoza, Raphael A. - International Monetary Fund (IMF) - 2011
We propose an original method to estimate the market price of risk under stress, which is needed to correct for risk aversion the CDS-implied probabilities of distress. The method is based, for simplicity, on a one-factor asset pricing model. The market price of risk under stress (the...