Merton models
Marking systemic portfolio risk with the Merton model
Original headline:
The downside risk of a portfolio of assets is generally substantially higher than the downside risk of its components. In times of crisis, when assets tend to have high correlation, the understanding of...
Original headline:
Kirk Buckley, Sascha Wilkens and Vladimir Chorniy present a semi-analytical approach for calculating the counterparty exposure of credit derivatives contracts conditional on the default of the counterparty,...
Original headline:
Ask any derivatives professional where they first learned about the subject and there’s a good chance they will tell you John Hull’s celebrated textbook, Options, futures and other derivatives. Heading...
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More Merton models articles
Smiling jumps
Original headline:
Local jump intensity models, in which the volatility of a Lévy process is made spot-dependent, are difficult to parameterise and calculate. However, they are an important ingredient of credit barrier models, in which the firm value is modelled as a geometric...
Quant Congress USA: UK and Netherlands least risky European debt
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Relatively healthy private sector means UK and Netherlands least likely to default
Variance-covariance-based risk allocation in credit portfolios
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Mikhail Voropaev proposes high-precision analytical approximation for variance-covariance-based risk allocation in a portfolio of risky assets. A general case of a single-period multi-factor Merton-type model with stochastic recovery is considered. The...
Low-default portfolios without simulation
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Low-default portfolios are a key Basel II implementation challenge, and various statistical techniques have been proposed for use in PD estimation for such portfolios. To produce estimates using these techniques, typically Monte Carlo simulation is required....
A saddle for complex credit portfolio models
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Guido Giese applies the saddle-point approximation to analyse tail losses for very general credit portfolios, including correlated defaults, stochastic recovery rates, and dependency between default probabilities and recovery rates. The numerical approach...
A Merton approach to transfer risk
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Transfer risk is the risk that debtors in a country are unable to ensure timely payments of foreign currency debt service due to transfer or exchange restrictions, or a general lack of foreign currency. Although this risk is not extensively addressed...
A Merton approach to transfer risk
Published online only
Transfer risk is the risk that debtors in a country are unable to ensure timely payments of foreign currency debt service due to transfer or exchange restrictions, or a general lack of foreign currency. Although this risk is not extensively addressed...
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