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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

Dangers of Bilateral Counterparty Risk : The Fundamental Impact of Closeout Conventions

Brigo, Damiano - 2011

In this paper we focus on a fundamental practical issue regarding the bilateral counterparty risk adjustment. The past literature assumes that, at the moment of the first default, a risk-free closeout amount will be used. The closeout amount is the net present value of the residual deal which is...

Persistent link: https://www.econbiz.de/10013132522

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

Liquidity Commonality in Commodities

Marshall, Ben R. - 2011

We examine liquidity commonality in commodity futures markets. Using data from 16 agricultural, energy, industrial … metal, precious metal, and livestock commodities, we show there is a strong systematic liquidity factor in commodities …. Liquidity commonality was present in 1997 - 2003 when commodity prices were relatively stable and during the recent boom. There …

Persistent link: https://www.econbiz.de/10013133566

Business Cycles and the Bankruptcy Code : A Structural Approach

Elkamhi, Redouane - 2011

We develop a structural equilibrium model with business cycles and use it to examine the economic implications of voluntary filing for bankruptcy. We find that conflict of interests that arises from the voluntary filing option of Chapter 11 causes higher ex-ante losses in firm value in...

Persistent link: https://www.econbiz.de/10013133686

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

Risky Funding : A Unified Framework for Counterparty and Liquidity Charges

Morini, Massimo - 2010

-intuitive results when credit risk of the counterparty (CVA) and of the investor (DVA) are added to the picture. Here, Massimo Morini …Standard techniques for incorporating liquidity costs into the fair value of derivatives produce counter … funding strategy, including associated default risks …

Persistent link: https://www.econbiz.de/10013138611

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

The Impact of Margin Interest on the Valuation of Credit Default Swaps

Kan, Yu Hang (Gabriel) - 2012

Virtually all credit default swaps (CDS) are collateralized with a daily cash settlement of the variation margin equal to the change in their mark-to-market values. We show how the interest on the variation margin (also called price alignment interest) affects the value of CDS. Specifically, we...

Persistent link: https://www.econbiz.de/10013115140