We derive necessary and sufficient conditions for the positive definiteness of the predicted volatility matrix in a bivariate autoregressive volatility specification. These nonlinear inequality restrictions have strong implications in terms of causality between volatilities and covolatilities....

Continuous-time affine models have been recently introduced in the theoretical financial literature on credit risk. They provide a coherent modeling, rather easy to implement, but have not yet encountered the expected success among practitioners and regulators. This is likely due to a lack of...