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Default Risk in Stochastic Volatility Models
Gersbach, Hans; Surulescu, Nicolae - 2010
We consider a stochastic volatility model of the mean-reverting type to describe the evolution of a firm’s values … default probability. Our simulation results indicate that the stochastic volatility model tends to predict higher default … probabilities than the corresponding Merton model if a firm’s credit quality is not too low. Otherwise the stochastic volatility …
Persistent link: https://www.econbiz.de/10011753195
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Asset Prices and Alternative Characterizations of the Pricing Kernel
Lüders, Erik - 2002
volatility. Hence, they are viable alternatives to the geometric Brownian motion. …
Persistent link: https://www.econbiz.de/10010298111
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A diffusion approximation for the riskless profit under selling of discrete time call options: Non-identically distributed jumps
Nagaev, Alexander V.; Nagaev, Sergei A.; Kunst, Robert M. - 2005
A discrete time model of financial markets is considered. It is assumed that the relative jumps of the risky security price are independent non-identically distributed random variables. In the focus of attention is the expected non-risky profit of the investor that arises when the jumps of the...
Persistent link: https://www.econbiz.de/10010293743
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Using mean reversion as a measure of persistence
Dias, Daniel; Robalo Marques, Carlos - 2005
This paper elaborates on the alternative measure of persistence recently suggested in Marques (2004), which is based on the idea of mean reversion. A formal distinction between the “unconditional probability of a given process not crossing its mean in period t” and its estimator, is made...
Persistent link: https://www.econbiz.de/10011604496
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The term structure of risk premia: new evidence from the financial crisis
Berg, Tobias - 2010
This study calibrates the term structure of risk premia before and during the 2007/2008 financial crisis using a new calibration approach based on credit default swaps. The risk premium term structure was flat before the crisis and downward sloping during the crisis. The instantaneous risk...
Persistent link: https://www.econbiz.de/10011605211
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Incorporating the dynamics of leverage into default prediction
Löffler, Gunter; Maurer, Alina - 2009
A firm's current leverage ratio is one of the core characteristics of credit quality used in statistical default prediction models. Based on the capital structure literature, which shows that leverage is mean-reverting to a target leverage, we forecast future leverage ratios and include them in...
Persistent link: https://www.econbiz.de/10010263767
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Real Interest Parity: A Note on Asian Countries Using Panel Stationarity Tests
Holmes, Mark J.; Otero, Jesús; Panagiotidis, Theodore - 2011
Existing panel data studies of real interest parity are either unable to identify which panel members are characterised by stationary real interest differentials, or are subject to size distortion resulting from the presence of structural breaks and cross-sectional dependencies. Using a panel...
Persistent link: https://www.econbiz.de/10010500180
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PPP in OECD Countries: An Analysis of Real Exchange Rate Stationarity, Cross-sectional Dependency and Structural Breaks
Holmes, Mark J.; Otero, Jesús; Panagiotidis, Theodore - 2011
The stationarity of OECD real exchange rates over the period 1972-2008 is tested using a panel of twenty six member countries. The methodology followed stems from the need to meet several key concerns: (i) the identification of which panel members are stationary; (ii) the presence of...
Persistent link: https://www.econbiz.de/10010500197
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Modelling the yield curve: A two components approach
Hatgioannides, John; Karanasos, Menelaos; Karanassou, Marika - 2004
Using parametric return autocorrelation tests and non parametric variance ratio statistics show that the UK and US short-term interest rates are unit root processes with significant mean reverting components. Congruent with this empirical evidence, we develop a new continuous time term structure...
Persistent link: https://www.econbiz.de/10010284146
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A comparative analysis of the nature of stock return volatility in BRICS and G7 markets
Muguto, Lorraine; Muzindutsi, Paul-Francois - In: Journal of Risk and Financial Management 15 (2022) 2, pp. 1-27
growing importance of emerging markets, the literature on the nature of volatility in global markets is typified by … volatility in developed G7 and emerging BRICS markets. Broad market index data and GARCH models over the period 2003 …:01-2020:08 were employed. The study found evidence of volatility persistence, asymmetry, mean reversion and weak evidence of a risk …
Persistent link: https://www.econbiz.de/10013201388