There has been increasing support in the empirical literature that both the probability of default (PD) and the loss given default (LGD) are correlated and driven by macroeconomic variables. Paradoxically, there has been very little effort from the theoretical literature to develop credit risk...

Recently there has been some interest in the credit risk literature in models which involve stopping times related to excursions. The classical Black-Scholes-Merton-Cox approach postulates that default may occur, either at or before maturity, when the firm's value process falls below a critical...

In this contribution, we study structural models of defaultable bond pricing in which default occurs at the first time a relevant process either reaches the default boundary or has spent continuously (or cumulatively) a fixed time period below that threshold. Unlike first-passage time...

Modeling correlated default risk is a new phenomenon currently sweeping through the credit markets. In this paper, we develop a methodology to model, simulate and assess the joint default process of hundreds of issuers. Our study is based on a data set of default probabilities supplied by...

In this paper we look at a multifactor Monte Carlo Gaussian Copula based model to price CDO's of ABS's. The probabilities of default are implied from prices of ABS bonds and several notional amortisation schedules are proposed. A detailed sensitivity analysis is done with respect to recovery...

Monte Carlo simulation is currently the method of choice for the pricing of callable derivatives in LIBOR market models. Lately more and more papers are surfacing in which variance reduction methods are applied to the pricing of derivatives with early exercise features. We focus on one of the...

In this paper we present a method to derive generic Monte Carlo estimators for the Greeks for jump diffusion and other Levy processes. For instance we consider models of Merton type and Levy processes obtained by subordinating a Brownian Motion. We use proxy schemes introduced by Fries and...

We review multi-factor cross-currency LIBOR market models. We present a new method for the calibration of cross-currency market models to FX markets. We study the case of Power Reverse Dual Currency derivatives. We also present a new version of Least Square monte carlo method which makes...

It is commonly accepted that Commodities futures and forward prices, in principle, agree under some simplifying assumptions. One of the most relevant assumptions is the absence of counterparty risk. Indeed, due to margining, futures have practically no counterparty risk. Forwards, instead, may...

We consider counterparty risk for Credit Default Swaps (CDS) in presence of correlation between default of the counterparty and default of the CDS reference credit. Our approach is innovative in that, besides default correlation, which was taken into account in earlier approaches, we also model...