This paper addresses the estimation of default probabilities and associated confidence sets with special focus on rare events. Research on rating transition data has documented a tendency for recently downgraded issuers to be at an increased risk of experiencing further downgrades compared to...

This paper investigates the pricing of step-up bonds, i.e. corporate bonds with provisions stating that the coupon payments increase as the credit rating level of the issuer declines. To assess the risk-neutral rating transition probabilities necessary to price these bonds, we introduce a new...

Recent advances in the theory of credit risk allow the use of standard term structure machinery for default risk modeling and estimation. The empirical literature in this area often interprets the drift adjustments of the default intensity's diffusion state variables as the only default risk...

We demonstrate the use of non-parametric intensity estimation - including construction of pointwise confidence sets - for analyzing rating transition data. We find that transition intensities away from the class studied here for illustration strongly depend on the direction of the previous move...

This paper analyzes the pricing of defaultable securities in rating-based models where the default of more than one agent is involved. We extend the model of Duffie and Huang (1996) to a framework which explicitly takes into account the rating of each party. Our extension allows us to...

We present an intensity based approach to modeling default risk and the term structure of credit risky bonds. Intensities of default are random but may depend on factors affecting the default-free term structure of interest rates. The framework is convenient for pricing derivative securities...

We characterize when physical probabilities, marginal utilities, and the discount rate can be recovered from observed state prices for several future time periods. We make no assumptions of the probability distribution, thus generalizing the time-homogeneous stationary model of Ross (2015)....

Quanto CDS spreads are differences in CDS premiums of the same reference entity but in different currency denominations. Such spreads can arise in arbitrage-free models and depend on the risk of a jump in the exchange rate upon default of the underlying and the covariance between the exchange...

Credit Default Swaps can be used to lower capital requirements of dealer banks who enter into uncollateralized derivatives positions with sovereigns. We show in a model that the regulatory incentive to obtain capital relief makes CDS contracts valuable to dealer banks and empirically that,...

The term structure of interest rates contains information about the market's expectations of the direction of future interest rates. Similarly, the term structure of credit spreads contains information about the market's perception of future credit spreads. The term structure of credit spreads...