This paper presents a framework in which many structural credit risk models can be made hybrid by randomizing the default trigger, while keeping the capital structure intact. This produces random recovery rates negatively correlated with the default probability. The approach is implemented on a...

Security prices are important inputs for estimating credit risk. Yet, to obtain an accurate firm-specific credit risk assessment, one needs a reliable model and a methodology that filters the elements unrelated to the firm's fundamentals from market prices.In this article, we introduce a hybrid...

Variable annuities are investment vehicles offered by insurance companies that combine a life insurance policy with long-term financial guarantees. These guarantees expose the insurer to market risks, such as volatility and interest rate risks, which can only be managed with a hedging strategy....

The Markov-switching GARCH model allows for a GARCH structure with time-varying parameters. This flexibility is unfortunately undermined by a path dependence problem which complicates the parameter estimation process. This problem led to the development of computationally intensive estimation...