This chapter explains how the main types of credit derivatives work and how they are valued. Central to the valuation of credit derivatives is an estimation of the probability that reference entities will default. The chapter discusses both the risk-neutral probabilities of default implied from...

We document changes in borrowers' sensitivity to negative equity and show heightened borrower default propensity as a fundamental driver of crisis period mortgage defaults. Estimates of a time-varying coefficient competing risk hazard model reveal a marked run-up in the default option beta from...

We derive multivariate risk neutral asset distributions for major US financial institutions (FIs) using option implied marginal risk neutral asset distributions (RNDs) and probabilities of default (PoDs). The multivariate densities are estimated by combining the entropy approach, dynamic copulas...

We derive multivariate risk-neutral asset distributions for major US financial institutions (FIs) using option implied marginal risk-neutral asset distributions (RNDs) and probabilities of default (PoDs). The multivariate densities are estimated by combining the entropy approach, dynamic copulas...