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Author : Chin Pang Li
Publisher :
ISBN 13 :
Total Pages : 132 pages
Book Rating : 4.:/5 (191 download)
Download or read book Estimating Jumps for Structural Models of Credit Risk written by Chin Pang Li and published by . This book was released on 2006 with total page 132 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Hoi Ying Wong
Publisher :
ISBN 13 :
Total Pages : 43 pages
Book Rating : 4.:/5 (129 download)
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.
Author : Jing-Zhi Huang
Publisher :
ISBN 13 :
Total Pages : 61 pages
Book Rating : 4.:/5 (129 download)
Download or read book Specification Analysis of Structural Credit Risk Models written by Jing-Zhi Huang and published by . This book was released on 2019 with total page 61 pages. Available in PDF, EPUB and Kindle. Book excerpt: Empirical studies of structural credit risk models so far are often based on calibration, rolling estimation, or regressions. This paper proposes a GMM-based method that allows us to both consistently estimate the model parameters and test whether all the restrictions of the model are satisfied. We conduct a specification analysis of five representative structural models based on the proposed GMM procedure, using information from both equity volatility and term structures of single-name credit default swap (CDS) spreads. Our test results strongly reject the Merton (1974) model and two diffusion-based models with a constant default boundary. The other two models, one with jumps and one with stationary leverage ratios, do improve the overall fit of CDS spreads and equity volatility. However, all five models have difficulty capturing the dynamic behavior of both equity volatility and CDS spreads, especially for investment-grade names. On the other hand, these models have a much better ability to explain the sensitivity of CDS spreads to equity returns.
Author : Tomasz R. Bielecki
Publisher : Springer Science & Business Media
ISBN 13 : 3662048213
Total Pages : 517 pages
Book Rating : 4.6/5 (62 download)
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.
Author : Elisa Luciano
Publisher :
ISBN 13 :
Total Pages : 23 pages
Book Rating : 4.:/5 (129 download)
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).
Author : Ayhan Yuksel
Publisher : LAP Lambert Academic Publishing
ISBN 13 : 9783838381312
Total Pages : 164 pages
Book Rating : 4.3/5 (813 download)
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.
Author : Jing-zhi Huang
Publisher :
ISBN 13 :
Total Pages : 56 pages
Book Rating : 4.E/5 ( download)
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:
Author : Markus Pelger
Publisher :
ISBN 13 :
Total Pages : 202 pages
Book Rating : 4.:/5 (17 download)
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:
Author : Donatien Hainaut
Publisher :
ISBN 13 :
Total Pages : 18 pages
Book Rating : 4.:/5 (13 download)
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.
Author : Laura Ballotta
Publisher :
ISBN 13 :
Total Pages : 39 pages
Book Rating : 4.:/5 (13 download)
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.
Author : Thanh Binh Dao
Publisher : LAP Lambert Academic Publishing
ISBN 13 : 9783845409061
Total Pages : 180 pages
Book Rating : 4.4/5 (9 download)
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.
Author : Kaddour Hadri
Publisher : World Scientific
ISBN 13 : 9814513474
Total Pages : 616 pages
Book Rating : 4.8/5 (145 download)
Download or read book Econometric Methods and Their Applications in Finance, Macro and Related Fields written by Kaddour Hadri and published by World Scientific. This book was released on 2014 with total page 616 pages. Available in PDF, EPUB and Kindle. Book excerpt: The volume aims at providing an outlet for some of the best papers presented at the 15th Annual Conference of the African Econometric Society, which is one of the OC chaptersOCO of the International Econometric Society. Many of these papers represent the state of the art in financial econometrics and applied econometric modeling, and some also provide useful simulations that shed light on the models'' ability to generate meaningful scenarios for forecasting and policy analysis. Contents: Financial Econometrics and International Finance: Modeling Interest Rates Using Reducible Stochastic Differential Equations: A Copula-Based Multivariate Approach (Ruijun Bu, Ludovic Giet, Kaddour Hadri and Michel Lubrano); Financial Risk Management Using Asymmetric Heavy-Tailed Distribution and Nonlinear Dependence Structures of Asset Returns Under Discontinuous Dynamics (Alaa El-Shazly); Modeling Time-Varying Dependence in the Term Structure of Interest Rates (Diaa Noureldin); Nonlinear Filtering and Market Implied Rating for a Jump-Diffusion Structural Model of Credit Risk (Alaa El-Shazly); Time-Varying Optimal Weights for International Asset Allocation in African and South Asian Markets (Dalia El-Edel); Econometric Theory and Methods: Econometric Methods for Ordered Responses: Some Recent Developments (Franco Peracchi); Which Quantile Is the Most Informative? Maximum Likelihood, Maximum Entropy and Quantile Regression (Anil K Bera, Antonio F Galvao Jr., Gabriel V Montes-Rojas, Sung Y Park); The Experimetrics of Fairness (Anna Conte and Peter Moffatt); Uniform in Bandwidth Tests of Specification for Conditional Moment Restrictions Models (Pascal Lavergne and Pierre Nguimkeu); Joint LM Test for Homoscedasticity in a Two Way Error Components Model (Eugene Kouassi, Joel Sango, J M BossonBrou and Kern O Kymn); An Approximation to the Distribution of the Pooled Estimator When the Time Series Equation Is One of a Complete System (Ghazal Amer and William Mikhail); Monetary, Labor, Environmental and Other Econometric Applications: Monetary Policy and the Role of the Exchange Rate in Egypt (Tarek Morsi and Mai El-Mossallamy); International Migration, Remittances and Household Poverty Status in Egypt (Rania Roushdy, Ragui Assaad and Ali Rashed); Determinants of Job Quality and Wages of the Working Poor: Evidence From 1998OCo2006 Egypt Labor Market Panel Survey (Mona Said); A Contract-Theoretic Model of Conservation Agreements (Heidi Gjertsen, Theodore Groves, David A Miller, Eduard Niesten, Dale Squires and Joel Watson); Household Environment and Child Health in Egypt (Mahmoud Hailat and Franco Peracchi); Modeling the Relationship between Natural Resource Abundance, Economic Growth, and the Environment: A Cross-Country Study (Hala Abou-Ali and Yasmine M Abdelfattah); Global Cement Industry: Competitive and Institutional Frameworks (Tarek H Selim and Ahmed S Salem); On the Occurrence of Ponzi Schemes in Presence of Credit Restrictions Penalizing Default (Abdelkrim Seghir); Is Targeted Advertising Always Beneficial? (Nada Ben Elhadj-Ben Brahim, Rim Lahmandi-Ayed and Didier Laussel). Readership: Graduate students and researchers in the fields of econometrics, economic theory, applied econometrics.
Author : Bong-Gyu Jang
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (13 download)
Download or read book Business Cycle and Credit Risk Modeling with Jump Risks written by Bong-Gyu Jang and published by . This book was released on 2016 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We develop a structural model that incorporates both macroeconomic risks and firm-specific jump risks. Using this model, we derive analytic formulas for default probability, equity price, and CDS spreads. We show that including the two types of risk in credit risk modeling can generate better explanations for firm's credit risks in the real world. Based on reasonably calibrated parameters, we find that our model could better predict actual default probabilities and overcome the underestimation of credit risks, especially for firms with high credit ratings, which has been one of the major limitations of the currently available structural models. The structural model proposed in this paper highlights that macroeconomic factors are important in modeling credit risks and that default probabilities, and CDS spreads could be dependent on the current economic state.
Author : Clemens Mueller
Publisher :
ISBN 13 :
Total Pages : 208 pages
Book Rating : 4.:/5 (89 download)
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:
Author : Chunsheng Zhou
Publisher :
ISBN 13 :
Total Pages : 64 pages
Book Rating : 4.E/5 ( download)
Download or read book A Jump-diffusion Approach to Modeling Credit Risk and Valuing Defaultable Securities written by Chunsheng Zhou and published by . This book was released on 1997 with total page 64 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Sebastian Pflumm
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (864 download)
Download or read book Calculating Default Probabilities with Stochastic Volatility written by Sebastian Pflumm and published by . This book was released on 2013 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper proposes a structural credit risk model with stochastic volatility and derives a closed-form solution for calculating the corresponding default probabilities. Changes and influences from adding stochastic volatility in the structural setup are thoroughly analyzed along several dimensions in comparison to the popular Merton model. Furthermore, the proposed model is also implemented via the pure proxy approach in order to facilitate the conducted empirical test. Thereby, the effectiveness of the stochastic volatility model in explaining market implied default probabilities before and during the financial crisis is examined. It is shown that, although the traditional Merton model performs better during the crisis, default probabilities with stochastic volatility are the only factor with significant explanatory power in the years leading up to the financial crisis. The study further reaches the conclusion that with the enhanced flexibility and ability to capture stylized facts, calculating default probabilities under consideration of stochastic volatility has the potential to significantly improve upon the shortcomings of existing structural models. However, with default probabilities highly dependent on parametrization, developing an effective method for implementation is a crucial next step in order to ensure successful application of the proposed structural credit risk model.
Author : Athanasios Orphanides
Publisher :
ISBN 13 :
Total Pages : 33 pages
Book Rating : 4.:/5 (255 download)
Download or read book Jump-diffusion Processes and Affine Term Structure Models written by Athanasios Orphanides and published by . This book was released on 2005 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: "Firms active in OTC derivative markets increasingly use margin agreements to reduce counterparty credit risk. Making several simplifying assumptions, I use both a quasi- analytic approach and a simulation approach to quantify how margining reduces counterparty credit exposure. Margining reduces counterparty credit exposure by over 80 percent, using baseline parameter assumptions. I show how expected positive exposure (EPE) depends on key terms of the margin agreement and the current mark-to-market value of the portfolio of contracts with the counterparty. I also discuss a possible shortcut that could be used by firms that can model EPE without margin but cannot achieve the higher level of sophistication needed to model EPE with margin"--Federal Reserve Board web site.
