Purpose – This paper aims to propose a new method for credit risk allocation among economic agents. Design/methodology/approach – The paper considers a pool of bank loans subject to a credit risk and develops a method for decomposing the credit risk into idiosyncratic and systematic...

Purpose – To propose a new methodology to infer the risk‐neutral default probability curve of a generic firm XYZ from equity options prices. Design/methodology/approach – It is assumed that the market is arbitrage‐free and the “market” probability measure implied in the equity...

Purpose – To implement the model described in the companion paper, “Pricing credit risk through equity options calibration, part 1 – theory,” and show how to calculate the price of a set of coupon bonds issued by a US telecommunications and media company, AOL Time Warner, based on the...

Purpose – The purpose of this article is to discuss a Black‐Scholes‐Merton (BSM)‐based market approach to quantify the default risk of publicly‐listed individual companies. Design/methodology/approach – Using the contingent claim approach, a framework is presented to optimally use...

Purpose – The purpose of this paper is to develop a hybrid logistic model by using the inputs obtained from BSM equity‐based option model described in the companion paper, “Mapping corporate drift towards default – Part 1: a market‐based approach” that can more accurately predict...

Purpose – The purpose of this paper is to consider the problem of using the Value‐at‐Risk (VaR) technique and examine its practical implementation by Swiss Private Banks. Design/methodology/approach – The paper is based on a survey originally undertaken in 2003 and updated in 2005. The...

Purpose – Perils of tornado and hail cause large amounts of loss every year. Based on the data provided by Property Claims Services, since 1949, tornado, hail and straight‐line‐wind losses account for more than 40 percent of total natural losses in the USA. Given the high frequency of...

Purpose – The purpose of this article is to estimate value at risk (VaR) using quantile regression and provide a risk analysis for defaultable bond portfolios. Design/methodology/approach – The method proposed is based on quantile regression pioneered by Koenker and Bassett. The quantile...

Purpose – The purpose of this article is to consider the classical risk model that is perturbed by a Brownian motion process. The article derives explicit formulas for the joint and marginal probability density functions of the surplus prior to ruin and the deficit at ruin....

Purpose – The purpose of this study is to introduce an insurance risk‐exchange model in the presence of background risk and private information and which solves the optimal insurance and investment decisions simultaneously. Design/methodology/approach – The model undertakes a...