, whilst removing credit risk transmission, systematically increase default risk …

Building on recent work incorporating recovery risk into structural models we consider the Black-Cox model with an … added recovery risk driver. The recovery risk driver arises naturally in the context of imperfect information implicit in …, whereby the asset risk driver A_t defines the default trigger and the recovery risk driver R_t defines the …

parameter, can distort asset pricing results through distress risk estimation, and that the existing academic debate between … results, based on (i) raw and risk-adjusted portfolio returns, (ii) characteristic sorted portfolio returns, and (iii) cross …

While empirical literature has documented a negative relation between default risk and stock returns, theory suggests …. In accordance with theory, we find that the systematic part, measured as the PD sensitivity to aggregate default risk, is … that default risk should be positively priced. In this paper, we calculate monthly probabilities of default (PDs) for a …

An important research question examined in the credit risk literature focuses on the proportion of corporate yield … spreads attributed to default risk. This topic is reexamined in the light of the different issues associated with the … estimated default risk proportion in corporate yield spreads is highly sensitive to the ex-ante estimated term structure of …

We study the endogenous determination of corporate debt maturity in a setting with default risk. We assume that firms … risk. The technology is such that earnings can switch to a higher (but riskier) level. In this second phase firms have … access to the equity market but they may default if this is the best option. We call this strategic default risk. In the …

While empirical literature has documented a negative relation between default risk and stock returns, the theory … suggests that default risk should be positively priced. We provide an explanation for this "default anomaly", by calculating … components. The systematic part, measured as the PD sensitivity to aggregate default risk, is positively related to stock returns …

In this work we incorporate recovery risk into Merton's original credit risk model by introducing a separate risk … adding the recovery risk driver has no impact on probabilities of default (PD), it does have an impact on loss given default … (LGD), and on quantities that depend on LGD such as credit prices and spreads. In fact, the addition of recovery risk …