Related papers: US Corporate Bond Yield Spread : A default risk de…
Risk-averse investors often wish to exclude stocks from their portfolios that bear high credit risk, which is a measure of a firm's likelihood of bankruptcy. This risk is commonly estimated by constructing signals from quarterly accounting…
In this paper, we deal with an axiomatic approach to default risk. We introduce the notion of a default risk measure, which generalizes the classical probability of default (PD), and allows to incorporate model risk in various forms. We…
Measuring the corporate default risk is broadly important in economics and finance. Quantitative methods have been developed to predictively assess future corporate default probabilities. However, as a more difficult yet crucial problem,…
We investigate the impact of available information on the estimation of the default probability within a generalized structural model for credit risk. The traditional structural model where default is triggered when the value of the firm's…
We develop a generalization of the Black-Cox structural model of default risk. The extended model captures uncertainty related to firm's ability to avoid default even if company's liabilities momentarily exceeding its assets. Diffusion in a…
We compare observed corporate cumulative default probabilities to those calculated using a stochastic model based on an extension of the work of Black and Cox and find that corporations default as if via diffusive dynamics. The model, based…
This paper extends an option-theoretic approach to estimate liquidity spreads for corporate bonds. Inspired by Longstaff's equity market framework and subsequent work by Koziol and Sauerbier on risk-free zero-coupon bonds, the model views…
Diffusion in a linear potential in the presence of position-dependent killing is used to mimic a default process. Different assumptions regarding transport coefficients, initial conditions, and elasticity of the killing measure lead to…
We propose a model for the credit markets in which the random default times of bonds are assumed to be given as functions of one or more independent "market factors". Market participants are assumed to have partial information about each of…
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 issue of model risk in default modeling has been known since inception of the Academic literature in the field. However, a rigorous treatment requires a description of all the possible models, and a measure of the distance between a…
Credit risk in the China's bond market has become increasingly evident, creating a progressively escalating risk of default for credit bond investors. Given the current incomplete and inaccurate bond information disclosure, timely tracking…
The existence of asymmetric information has always been a major concern for financial institutions. Financial intermediaries such as commercial banks need to study the quality of potential borrowers in order to make their decision on…
Risk management is an important practice in the banking industry. In this paper we develop a new methodology to estimate and predict the probability of default (PD) based on the rating transition matrices, which relates the rating…
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…
There is empirical evidence that recovery rates tend to go down just when the number of defaults goes up in economic downturns. This has to be taken into account in estimation of the capital against credit risk required by Basel II to cover…
The paper analyzes the mathematics of the relationship between the default risk and yield-to-maturity of a coupon bond. It is shown that the yield-to-maturity is driven not only by the default probability and recovery rate of the bond but…
The lifetime behaviour of loans is notoriously difficult to model, which can compromise a bank's financial reserves against future losses, if modelled poorly. Therefore, we present a data-driven comparative study amongst three techniques in…
The modeling of the probability of joint default or total number of defaults among the firms is one of the crucial problems to mitigate the credit risk since the default correlations significantly affect the portfolio loss distribution and…
In the aftermath of the global financial crisis, much attention has been paid to investigating the appropriateness of the current practice of default risk modeling in banking, finance and insurance industries. A recent empirical study by…