We derive a closed-form expression for the bilateral credit valuation adjustment of a credit default swap in presence of simultaneous defaults. We develop our analysis under a default intensity model specified by a class of three-dimensional subordinators, allowing for default dependence through...

Empirical studies on credit spread determinants are predicated on the presence of a single-regime over the entire sample period and thus find limited explanatory power. A single-regime model hides the fact that explanatory variables take on different loadings across changing patterns in credit...

This paper uses panel vector autoregressive (VAR) models for euro area member countries to explore the widening of retail bank interest rate spreads that emerged in the course of the global financial crisis. We find that the interest rate pass-through was generally complete on impact before the...

This paper evaluates several alternative formulations for minimizing the credit risk of a portfolio of financial contracts with different counterparties. Credit risk optimization is challenging because the portfolio loss distribution is typically unavailable in closed form. This makes it...

We apply Markov chain Monte Carlo methods to time series data on S&P 500 index returns, and to its option prices via a term structure of VIX indices, to estimate 18 different affine and non-affine stochastic volatility models with one or two variance factors, and where jumps are allowed in both...

We propose a new accurate method for pricing European spread options by extending the lower bound approximation of Bjerksund and Stensland (2011) beyond the classical Black–Scholes framework. This is possible via a procedure requiring a univariate Fourier inversion. In addition, we are also...

Before August 2007, implied forward rates in the overnight interest swap rates closely reflected market expectations about the future path of the Eonia, and therefore, about the future course of the ECB’s monetary policy stance. Nevertheless, this link was weakened considerably during the most...

The valuation of corporate debt is an important issue in asset pricing. While there has been an enormous amount of theoretical modeling of corporate bond prices, there has been relatively little empirical testing of these models 1.(...)

Recent studies of the expectations hypothesis of the term structure (EHTS) find evidence in favor of the EHTS using post 1980s US data. This has been attributed to the relative macro stability of this period and greater market efficiency. Using a panel of forecasts for 3-month interest rates for...