Related papers: Defining, Estimating and Using Credit Term Structu…
In the second part of our series we suggest new definitions of credit bond duration and convexity that remain consistent across all levels of credit quality including deeply distressed bonds and introduce additional risk measures that are…
In the third part of this series we introduce consistent relative value measures for CDS-Bond basis trades using the bond-implied CDS term structure derived from fitted survival rate curves. We explain why this measure is better than the…
This paper introduces a novel stochastic model for credit spreads. The stochastic approach leverages the diffusion of default intensities via a CIR++ model and is formulated within a risk-neutral probability space. Our research primarily…
The notion of a credit spread curve is fundamental in fixed income investing, but in practice it is not `given' and needs to be constructed from bond prices either for a particular issuer, or for a sector rating-by-rating. Rather than…
We give a comprehensive review of credit term structure modeling methodologies. The conventional approach to modeling credit term structure is summarized and shown to be equivalent to a particular type of the reduced form credit risk model,…
This paper develops a two-dimensional structural framework for valuing credit default swaps and corporate bonds in the presence of default contagion. Modelling the values of related firms as correlated geometric Brownian motions with…
In this paper, we analyze the diversity of term structure functions (e.g., yield curves, swap curves, credit curves) constructed in a process which complies with some admissible properties: arbitrage-freeness, ability to fit market quotes…
The term structure of credit spreads is studied with an aim to predict its future movements. A completely new approach to tackle this problem is presented, which utilizes nonlinear parametric models. The Brain-Cousens regression model with…
The market practice of extrapolating different term structures from different instruments lacks a rigorous justification in terms of cash flows structure and market observables. In this paper, we integrate our previous consistent theory for…
We establish a profound connection between coherent risk measures, a prominent object in quantitative finance, and uniform integrability, a fundamental concept in probability theory. Instead of working with absolute values of random…
We propose a model which can be jointly calibrated to the corporate bond term structure and equity option volatility surface of the same company. Our purpose is to obtain explicit bond and equity option pricing formulas that can be…
We consider the problem of modelling the term structure of defaultable bonds, under minimal assumptions on the default time. In particular, we do not assume the existence of a default intensity and we therefore allow for the possibility of…
The aim of this study is to present proofs for new theorems. Basic thoughts of new definitions emerge from the decision-making under uncertainty in economics and finance. Shape of the certain utility curve is central to standard definitions…
The paper analyzes risk assessment for cash flows in continuous time using the notion of convex risk measures for processes. By combining a decomposition result for optional measures, and a dual representation of a convex risk measure for…
We study time-consistency questions for processes of monetary risk measures that depend on bounded discrete-time processes describing the evolution of financial values. The time horizon can be finite or infinite. We call a process of…
This paper approaches the definition and properties of dynamic convex risk measures through the notion of a family of concave valuation operators satisfying certain simple and credible axioms. Exploring these in the simplest context of a…
Based on supermodularity ordering properties, we show that convex risk measures of credit losses are nondecreasing w.r.t. credit-credit and, in a wrong-way risk setup, credit-market, covariances of elliptically distributed latent factors.…
The hypothesis that committed revolving credit lines with fixed spreads can provide firms with interest rate insurance is a standard feature of models on these credit facilities' interest rate structure. Nevertheless, this hypothesis has…
The instability of the financial system as experienced in recent years and in previous periods is often linked to credit defaults, i.e., to the failure of obligors to make promised payments. Given the large number of credit contracts, this…
In this paper, we study general monetary risk measures (without any convexity or weak convexity). A monetary (respectively, positively homogeneous) risk measure can be characterized as the lower envelope of a family of convex (respectively,…