In this paper we propose a new methodology to enhance the discriminatory power of backtesting for counterparty credit risk (CCR) by effectively removing strong autocorrelation in overlapping data. It is assessed by the benchmark result of non-overlapping backtesting data with the same number of...

In this article we introduce a new framework for counterparty risk model backtesting based on Bayesian methods. This provides a conceptually sound approach for analyzing model performance which is also straightforward to implement. We show that our methodology provides important advantages over...

This study examines the impact of changes in the yield curve factors on the Credit Default Swap (CDS) spreads of the U.S. industrial sectors. Stock returns and the crude oil-based volatility index are used in a quantile regression framework to test the validity of Merton’s model. The results...