A Structural Model for Credit Risk with Markov Modulated Lévy Processes and Synchronous Jumps

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ISBN 13 :
Total Pages : 18 pages
Book Rating : 4.:/5 (13 download)

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Book Synopsis A Structural Model for Credit Risk with Markov Modulated Lévy Processes and Synchronous Jumps by : Donatien Hainaut

Download or read book A Structural Model for Credit Risk with Markov Modulated Lévy Processes and Synchronous Jumps written by Donatien Hainaut and published by . This book was released on 2014 with total page 18 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper presents a switching regime version of the Merton's structural model for the pricing of default risk. The default event depends on the total value of the firm's asset modeled by a Markov modulated Lévy process. The novelty of our approach is to consider that firm's asset jumps synchronously with a change in the regime. After a discussion of dynamics under the risk neutral measure, we present two models. In the first one, the default occurs at bond maturity if the firm's value falls below a predetermined barrier. In the second version, the company can bankrupt at multiple predetermined discrete times. The use of a Markov chain to model switches in hidden external factors makes it possible to capture the effects of changes in trends and volatilities exhibited by default probabilities. Finally, with synchronous jumps, the firm's asset and state processes are no longer uncorrelated.

Levy Processes in Credit Risk

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Publisher : John Wiley & Sons
ISBN 13 : 0470685069
Total Pages : 213 pages
Book Rating : 4.4/5 (76 download)

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Book Synopsis Levy Processes in Credit Risk by : Wim Schoutens

Download or read book Levy Processes in Credit Risk written by Wim Schoutens and published by John Wiley & Sons. This book was released on 2010-06-15 with total page 213 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book is an introductory guide to using Lévy processes for credit risk modelling. It covers all types of credit derivatives: from the single name vanillas such as Credit Default Swaps (CDSs) right through to structured credit risk products such as Collateralized Debt Obligations (CDOs), Constant Proportion Portfolio Insurances (CPPIs) and Constant Proportion Debt Obligations (CPDOs) as well as new advanced rating models for Asset Backed Securities (ABSs). Jumps and extreme events are crucial stylized features, essential in the modelling of the very volatile credit markets - the recent turmoil in the credit markets has once again illustrated the need for more refined models. Readers will learn how the classical models (driven by Brownian motions and Black-Scholes settings) can be significantly improved by using the more flexible class of Lévy processes. By doing this, extreme event and jumps can be introduced into the models to give more reliable pricing and a better assessment of the risks. The book brings in high-tech financial engineering models for the detailed modelling of credit risk instruments, setting up the theoretical framework behind the application of Lévy Processes to Credit Risk Modelling before moving on to the practical implementation. Complex credit derivatives structures such as CDOs, ABSs, CPPIs, CPDOs are analysed and illustrated with market data.

An Intensity Model for Credit Risk with Switching Lévy Processes

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Publisher :
ISBN 13 :
Total Pages : 22 pages
Book Rating : 4.:/5 (13 download)

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Book Synopsis An Intensity Model for Credit Risk with Switching Lévy Processes by : Donatien Hainaut

Download or read book An Intensity Model for Credit Risk with Switching Lévy Processes written by Donatien Hainaut and published by . This book was released on 2014 with total page 22 pages. Available in PDF, EPUB and Kindle. Book excerpt: We develop a switching regime version of the intensity model for credit risk pricing. The default event is specified by a Poisson process whose intensity is modeled by a switching Lévy process. This model presents several interesting features. Firstly, as Lévy processes encompass numerous jump processes, our model can duplicate sudden jumps observed in credit spreads. Also, due to the presence of jumps, probabilities do not vanish at very short maturities, contrary to models based on Brownian dynamics. Furthermore, as parameters of the Lévy process are modulated by a hidden Markov chain, our approach is well suited to model changes of volatility trends in credit spreads, related to modifications of unobservable economic factors.

Credit Risk: Modeling, Valuation and Hedging

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Publisher : Springer Science & Business Media
ISBN 13 : 3662048213
Total Pages : 517 pages
Book Rating : 4.6/5 (62 download)

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Book Synopsis Credit Risk: Modeling, Valuation and Hedging by : Tomasz R. Bielecki

Download or read book Credit Risk: Modeling, Valuation and Hedging written by Tomasz R. Bielecki and published by Springer Science & Business Media. This book was released on 2013-03-14 with total page 517 pages. Available in PDF, EPUB and Kindle. Book excerpt: The motivation for the mathematical modeling studied in this text on developments in credit risk research is the bridging of the gap between mathematical theory of credit risk and the financial practice. Mathematical developments are covered thoroughly and give the structural and reduced-form approaches to credit risk modeling. Included is a detailed study of various arbitrage-free models of default term structures with several rating grades.

Credit Risk Modeling

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Publisher : LAP Lambert Academic Publishing
ISBN 13 : 9783838381312
Total Pages : 164 pages
Book Rating : 4.3/5 (813 download)

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Book Synopsis Credit Risk Modeling by : Ayhan Yuksel

Download or read book Credit Risk Modeling written by Ayhan Yuksel and published by LAP Lambert Academic Publishing. This book was released on 2010 with total page 164 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book deals with the modeling of credit risk by using a structural approach. Three fundamental questions of credit risk literature are analyzed throughout the book: modeling single firm credit risk, modeling portfolio credit risk and credit risk pricing. First we analyze these questions under the assumptions that firm value follows a geometric Brownian motion and the interest rates are constant. We discuss the weaknesses of the geometric Brownian motion assumption in explaining empirical properties of real data. Then we propose a new extended model in which asset value, volatility and interest rates follow affine jump diffusion processes. In our extended model volatility is stochastic, asset value and volatility has correlated jumps and interest rates are stochastic and have jumps. Finally, we analyze the modeling of single firm credit risk and credit risk pricing by using our extended model and show how our model can be used as a solution for the problems we encounter with simple models.

Structural Approach of Credit Risk with Jump Diffusion Process

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Publisher : LAP Lambert Academic Publishing
ISBN 13 : 9783845409061
Total Pages : 180 pages
Book Rating : 4.4/5 (9 download)

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Book Synopsis Structural Approach of Credit Risk with Jump Diffusion Process by : Thanh Binh Dao

Download or read book Structural Approach of Credit Risk with Jump Diffusion Process written by Thanh Binh Dao and published by LAP Lambert Academic Publishing. This book was released on 2011-07 with total page 180 pages. Available in PDF, EPUB and Kindle. Book excerpt: "Structural Approach of Credit Risk with Jump Diffusion Process" proposes three essays in the modelling of the firm's asset value as a jump diffusion process within the structural approach of credit risk. The first essay deals with the modelling of a perpetual coupon debt structure using two different jump diffusion processes: double exponential and uniform. The second models a debt structure of roll-over perpetual, where the firm's asset value follows a double exponential jump diffusion process. The third develops a model with zero coupon debt structure, and takes into account a stopping time marked by an important negative jump. In our essays, we obtain almost closed form formulae for the debt, equity and firm values, as well as the endogenous default barrier and credit spreads. Levels of credit spreads obtained are closer to the market data and confirm the existence of an optimal capital structure, which takes into account the risk free rate, pay-out ratio, firm risk, tax rate, default costs, and jump intensity & sizes.These essays are designed to provide academic and practitioners with useful and insightful knowledge of credit risk, default event as well as credit spreada.

Credit Correlation

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Publisher : World Scientific
ISBN 13 : 9812709509
Total Pages : 178 pages
Book Rating : 4.8/5 (127 download)

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Book Synopsis Credit Correlation by : Alexander Lipton

Download or read book Credit Correlation written by Alexander Lipton and published by World Scientific. This book was released on 2008 with total page 178 pages. Available in PDF, EPUB and Kindle. Book excerpt: The recent growth of credit derivatives has been explosive. The global credit derivatives market grew in notional value from $1 trillion to $20 trillion from 2000 to 2006. However, understanding the true nature of these instruments still poses both theoretical and practical challenges. For a long time now, the framework of Gaussian copulas parameterized by correlation, and more recently base correlation, has provided an adequate, if unintuitive, description of the market. However, the increased liquidity in credit indices and index tranches, as well as the proliferation of exotic instruments such as forward starting tranches, options on tranches, leveraged super senior tranches, and the like, have made it imperative to come up with models that describe market reality better. This book, originally and concurrently published in the International Journal of Theoretical and Applied Finance, Vol. 10, No. 4, 2007, agrees that base correlation has outlived its usefulness; opinions of how to replace it, however, are divided. Both the top-down and bottom-up approaches for describing the dynamics of credit baskets are presented, and pro and contra arguments are put forward. Readers will decide which direction is the most promising one at the moment. However, it is hoped that, in the near future, models that transcend base correlation will be proposed and accepted by the market. Sample Chapter(s). Introduction (31 KB). Chapter 1: L(r)vy Simples Tructural Models (209 KB). Contents: L(r)vy Simple Structural Models (M Baxter); Cluster-Based Extension of the Generalized Poisson Loss Dynamics and Consistency with Single Names (D Brigo et al.); Stochastic Intensity Modeling for Structured Credit Exotics (A Chaposvsky et al.); Large Portfolio Credit Risk Modeling (M H A Davis & J C Esparragoza-Rodriguez); Empirical Copulas for CDO Tranche Pricing Using Relative Entropy (M A H Dempster et al.); Pricing and Hedging in a Dynamic Credit Model (Y Elouerkhaoui); Joint Distributions of Portfolio Losses and Exotic Portfolio Products (F Epple et al.); On the Term Structure of Loss Distributions: A Forward Model Approach (J Sidenius). Readership: Professionals, academics and students in the areas of finance and bank

Semi-Markov Migration Models for Credit Risk

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Publisher : John Wiley & Sons
ISBN 13 : 1848219059
Total Pages : 318 pages
Book Rating : 4.8/5 (482 download)

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Book Synopsis Semi-Markov Migration Models for Credit Risk by : Guglielmo D'Amico

Download or read book Semi-Markov Migration Models for Credit Risk written by Guglielmo D'Amico and published by John Wiley & Sons. This book was released on 2017-06-26 with total page 318 pages. Available in PDF, EPUB and Kindle. Book excerpt: Credit risk is one of the most important contemporary problems for banks and insurance companies. Indeed, for banks, more than forty percent of the equities are necessary to cover this risk. Though this problem is studied by large rating agencies with substantial economic, social and financial tools, building stochastic models is nevertheless necessary to complete this descriptive orientation. This book presents a complete presentation of such a category of models using homogeneous and non-homogeneous semi-Markov processes developed by the authors in several recent papers. This approach provides a good method of evaluating the default risk and the classical VaR indicators used for Solvency II and Basel III governance rules. This book is the first to present a complete semi-Markov treatment of credit risk while also insisting on the practical use of the models presented here, including numerical aspects, so that this book is not only useful for scientific research but also to managers working in this field for banks, insurance companies, pension funds and other financial institutions.

Estimating Jump Diffusion Structural Credit Risk Models

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ISBN 13 :
Total Pages : 43 pages
Book Rating : 4.:/5 (129 download)

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Book Synopsis Estimating Jump Diffusion Structural Credit Risk Models by : Hoi Ying Wong

Download or read book Estimating Jump Diffusion Structural Credit Risk Models written by Hoi Ying Wong and published by . This book was released on 2006 with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt: There is strong evidence that structural models of credit risk significantly underestimate both credit yield spreads and the probability of default if the value of corporate assets follows a diffusion process. Adding a jump component to the firm value process is a potential remedy for the underestimation. However, there are very few empirical studies of jump-diffusion (or Levy) structural models in the literature. The major challenge is the estimation of hidden variables, such as the firm value, volatility, and parameters of the jump component, as the value of corporate assets is not directly observable. In practice, parameters and the value of the firm should be estimated using the market values of equities. This paper provides a promising estimation method for jump-diffusion processes in structural models that are based on observed stock data. We show that the traditional estimation methods for structural models, the variance-restriction method and maximum likelihood estimation, fail when jumps appear in credit risk models. We then propose a penalized likelihood approach and devise a corresponding expectationmaximum algorithm. The approach is applied to the jump-diffusion processes of Merton (1976) and Kou (2002) and the performance is examined through a series of simulations and empirical data.

Introduction to Credit Risk Modeling

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Publisher : CRC Press
ISBN 13 : 1584889934
Total Pages : 386 pages
Book Rating : 4.5/5 (848 download)

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Book Synopsis Introduction to Credit Risk Modeling by : Christian Bluhm

Download or read book Introduction to Credit Risk Modeling written by Christian Bluhm and published by CRC Press. This book was released on 2016-04-19 with total page 386 pages. Available in PDF, EPUB and Kindle. Book excerpt: Contains Nearly 100 Pages of New MaterialThe recent financial crisis has shown that credit risk in particular and finance in general remain important fields for the application of mathematical concepts to real-life situations. While continuing to focus on common mathematical approaches to model credit portfolios, Introduction to Credit Risk Modelin

Structural credit risk modeling with jump diffusion processes engl

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ISBN 13 :
Total Pages : 202 pages
Book Rating : 4.:/5 (17 download)

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Book Synopsis Structural credit risk modeling with jump diffusion processes engl by : Markus Pelger

Download or read book Structural credit risk modeling with jump diffusion processes engl written by Markus Pelger and published by . This book was released on 2012 with total page 202 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Credit Risk in Pure Jump Structural Models

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ISBN 13 :
Total Pages : 23 pages
Book Rating : 4.:/5 (129 download)

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Book Synopsis Credit Risk in Pure Jump Structural Models by : Elisa Luciano

Download or read book Credit Risk in Pure Jump Structural Models written by Elisa Luciano and published by . This book was released on 2006 with total page 23 pages. Available in PDF, EPUB and Kindle. Book excerpt: Structural models of credit risk are known to present vanishing spreads at very short maturities. This shortcoming, which is due to the diffusive behavior assumed for asset values, can be circumvented by considering discontinuities of the jump type in their evolution over time. In particular, assuming a pure jump process. Moreover, when applied to market data diffusion-based structural models tend to produce too low spreads, even over longer horizons. In this paper we show that a jump process of the Variance-Gamma type for the asset value can also circumvent this practical shortcoming. We calibrate a terminal-default jump structural model to single-name data for the CDX NA IG and CDX NA HY components. We show that the VG model provides not only smaller errors, but also a better qualitative fit than other diffusive structural models. Indeed, it avoids both the spread underprediction of the classical Merton model and the excessive overpredictions of other well known diffusive models, as recently explored by Eom, Helwege, Huang (2004) or Demchuk and Gibson (2005).

Credit Risk Pricing Models

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Publisher : Springer Science & Business Media
ISBN 13 : 9783540404668
Total Pages : 410 pages
Book Rating : 4.4/5 (46 download)

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Book Synopsis Credit Risk Pricing Models by : Bernd Schmid

Download or read book Credit Risk Pricing Models written by Bernd Schmid and published by Springer Science & Business Media. This book was released on 2004-01-21 with total page 410 pages. Available in PDF, EPUB and Kindle. Book excerpt: Credit Risk Pricing Models - now in its second edition - gives a deep insight into the latest basic and advanced credit risk modelling techniques covering not only the standard structural, reduced form and hybrid approaches but also showing how these methods can be applied to practice. The text covers a broad range of financial instruments, including all kinds of defaultable fixed and floating rate debt, credit derivatives and collateralised debt obligations.This volume will be a valuable source for the financial community involved in pricing credit linked financial instruments. In addition, the book can be used by students and academics for a comprehensive overview of the most important credit risk modelling issues.

A Hidden Markov Chain Model for the Term Structure of Bond Credit Risk Spreads

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Publisher :
ISBN 13 :
Total Pages : 36 pages
Book Rating : 4.:/5 (129 download)

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Book Synopsis A Hidden Markov Chain Model for the Term Structure of Bond Credit Risk Spreads by : Lyn C. Thomas

Download or read book A Hidden Markov Chain Model for the Term Structure of Bond Credit Risk Spreads written by Lyn C. Thomas and published by . This book was released on 2001 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper provides a Markov chain model for the term structure and credit risk spreads of bond prices. It allows dependency between the stochastic process modeling the interest rate and the Markov chain process describing changes in the credit rating of the bonds by their mutual dependency on a hidden Markov chain, which can be thought of as describing the underlying economic conditions. The model also allows a new interpretation of risk premia used in previous approaches and also uses a linear programming approach to strip the bonds of their coupons in such a way as to guarantee there is no mis-pricing.

Three Essays in the Theory of Credit Risk

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Publisher :
ISBN 13 :
Total Pages : 208 pages
Book Rating : 4.:/5 (89 download)

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Book Synopsis Three Essays in the Theory of Credit Risk by : Clemens Mueller

Download or read book Three Essays in the Theory of Credit Risk written by Clemens Mueller and published by . This book was released on 2000 with total page 208 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Counterparty Credit Risk in a Multivariate Structural Model with Jumps

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Publisher :
ISBN 13 :
Total Pages : 39 pages
Book Rating : 4.:/5 (13 download)

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Book Synopsis Counterparty Credit Risk in a Multivariate Structural Model with Jumps by : Laura Ballotta

Download or read book Counterparty Credit Risk in a Multivariate Structural Model with Jumps written by Laura Ballotta and published by . This book was released on 2014 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: We present a multivariate version of a structural default model with jumps and use it in order to quantify the bilateral credit value adjustment and the bilateral debt value adjustment for equity contracts, such as forwards, in a Merton-type default setting. In particular, we explore the impact of changing correlation between names on these adjustments and study the effect of wrong-way and right-way risk.

Specification Analysis of Structural Credit Risk Models

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ISBN 13 :
Total Pages : 56 pages
Book Rating : 4.E/5 ( download)

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Book Synopsis Specification Analysis of Structural Credit Risk Models by : Jing-zhi Huang

Download or read book Specification Analysis of Structural Credit Risk Models written by Jing-zhi Huang and published by . This book was released on 2008 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt: