This paper surveys some recent developments in the theory of capital markets. Particular emphasis is given to two strands of the literature. The first covers some recent and fundamental extensions to the theory of risk aversion and the demand for risky assets. Theses papers are concerned with...

We estimate a three-factor model to fit both the time-series dynamics and cross-sectional shapes of the U.S. term structure. In the model, three unobserved factors drive a discrete-time stochastic discount process, with one factor reverting to a fixed mean and a second factor reverting to a...

This paper develops a multi-factor econometric model of the term structure of interest-rate swap yields. The model accommodates the possibility of counterparty default and any differences in the liquidities of the Treasury and Swap markets. By parameterizing a model of swap rates directly, we...

Hull and White (1993) considered a general one-factor interest rate model and developed a numerical procedure involving the use of trinomial trees so that the model is consistent with initial market data. Their procedure is very effective for some particular types of volatility functions, but...

In this paper, we present a model for the term structure of interest rates, which integrates the existing multifactor and time dependent approaches of term structure models. This integrated model uses the time series data so that it has macroeconomic implications such as interest rate volatility...

We investigate the risk of holding credit default swaps (CDS) in the trading book and compare the Value at Risk (VaR) of a CDS position to the VaR for investing in the respective firm's equity using a sample of CDS - stock price pairs for 86 actively traded firms over the period from March 2003...

This paper applies regression analysis to investigate the fundamental factors of the variation of CDS index tranches. The sample comprises daily data on the tranche premia of the European iTraxx and North American CDX index from the start of the market in summer 2004 to January 2008. I estimate...

This paper presents an internally consistent analysis of the economic determinants of the term structure of credit spreads across different credit rating classes and industry sectors. Our analysis proceeds in two steps. First, we extract three economic factors from 13 time series that capture...

Prices of riskfree bonds in any arbitrage-free environment are governed by a pricing kernel: given a kernel, we can compute prices of bonds of any maturity we like. We use observed prices of multi-period bonds to estimate, in a log- linear theoretical setting, the pricing kernel that gave rise...

We estimate a three-factor model to fit both the time-series dynamics and cross-sectional shapes of the U.S. term structure. In the model, three unobserved factors drive a discrete-time stochastic discount process, with one factor reverting to a fixed mean and a second factor reverting to a...