We investigate whether the US equity market exhibits underreaction or overreaction. More specifically, we study the directional and magnitude effects associated with abnormal market reaction. The directional effect is the phenomenon that an extreme price movement will be followed by a price...

In this paper, we provide two one-factor heavy-tailed copula models for pricing a collateralized debt obligation and credit default index swap tranches: (1) a one-factor double t distribution with fractional degrees of freedom copula model and (2) a one-factor double mixture distribution of t...

Purpose – This paper seeks to discuss a modeling tool for explaining credit‐risk contagion in credit portfolios. Design/methodology/approach – Presents a “collective risk” model that models the credit risk of a portfolio, an approach typical of insurance mathematics. Findings – ACD...