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Sovereign credit risk and stock markets : does the markets’ dependency increase with financial Distress?

Silva, Paulo Pereira da - In: International Journal of Financial Studies : open … 2 (2014) 1, pp. 145-167

This paper addresses the relationship between stock markets and credit default swaps (CDS) markets. In particular, I aim to gauge if the co-movement between stock prices and sovereign CDS spreads increases with the deterioration of the credit quality of sovereign debt. The analysis of...

Persistent link: https://www.econbiz.de/10010373349

Default dependence : the equity default relationship

Turnbull, Stuart M. (contributor); Yang, Jun (contributor) - 2008

The paper examines three equity-based structural models to study the nonlinear relationship between equity and credit default swap (CDS) prices. These models differ in the specification of the default barrier. With cross-firm CDS premia and equity information, we are able to estimate and compare...

Persistent link: https://www.econbiz.de/10003641322

Modeling default dependence with threshold models

Overbeck, Ludger; Schmidt, Wolfgang M. - 2003

We investigate the problem of modeling defaults of dependent credits. In the framework of the class of structural default models we study threshold models where for each credit the underling ability-to-pay process is a transformation of a Wiener processes. We propose a model for dependent...

Persistent link: https://www.econbiz.de/10003853455

Giesecke, Kay - 2001

We propose a model of correlated multi-firm default with incomplete information. While public bond investors observe issuers' assets and defaults, we suppose that they are not informed about the threshold asset level at which a firm is liquidated. Bond investors form instead a prior on these...

Persistent link: https://www.econbiz.de/10009621426

Costly External Finance, Liquidity Risk, and Default Risk

Yang, Jun - 2011

I use the 2007-2008 financial crisis to gauge how internal financial resources and external financial constraints mitigate or worsen the impact of the crisis on default risk of US industrial firms. I identify heterogeneity in short-term funding needs at the onset of the crisis by exploiting...

Persistent link: https://www.econbiz.de/10013128496

Modelling Default Risk : A New Structural Approach

Yildirim, Yildiray - 2011

This paper provides an alternative approach to the structural credit risk models. The first-passage-time approach extends the original Merton (Journal of Finance 29, 449-470) model by accounting for the fact that the default may occur not only at the debt's maturity, but also prior to this date....

Persistent link: https://www.econbiz.de/10013130480

Levy Subordinator Model : A Two Parameter Model of Default Dependency

Balakrishna, B.S. - 2011

The May 2005 crisis and the recent credit crisis have indicated to us that any realistic model of default dependency needs to account for at least two risk factors, firm-specific and catastrophic. Unfortunately, the popular Gaussian copula model has no identifiable support to either of these. In...

Persistent link: https://www.econbiz.de/10013132621

Credit Default Swaps Liquidity Modeling : A Survey

Brigo, Damiano - 2011

We review different theoretical and empirical approaches for measuring the impact of liquidity on CDS prices. We start … by reduced form models incorporating liquidity as an additional discount rate. We review Chen, Fabozzi and Sverdlove … (2008) and Buhler and Trapp (2006, 2008), adopting different assumptions on how liquidity rates enter the CDS premium rate …

Persistent link: https://www.econbiz.de/10013133848

A Reduced Form Model of Default Spreads with Markov-Switching Macroeconomic Factors

Dionne, Georges - 2010

can be explained by factors such as the possibility of default, liquidity, tax differentials and market risk. We …

Persistent link: https://www.econbiz.de/10013136262

Default Risk in Stochastic Volatility Models

Gersbach, Hans - 2010

We consider a stochastic volatility model of the mean-reverting type to describe the evolution of a firm's values instead of the classical approach by Merton with geometric Brownian motions. We develop an analytical expression for the default probability. Our simulation results indicate that the...

Persistent link: https://www.econbiz.de/10013138808

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