Technical papers/Credit Risk
Collateralized credit default swaps and default dependence: implications...
We study the pricing of a continuously collateralized credit default swap (CDS). We make use of the "survival measure" to derive the pricing formula in a straightforward way. As a result, we find that,...
Regulators are attempting to narrow the gap between regulatory capital formulas and banks’ internal models – but recent work in the area of the controversial credit value adjustment demonstrates just...
Calculating credit value adjustments can be very numerically intensive, often involving nested Monte Carlo simulations. Pierre Henry-Labordère uses marked branching diffusions to construct an efficient...
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More Technical papers/Credit Risk articles
Impact of factor models on portfolio risk measures: a structural approach...
This paper analyzes the impact of several popular factor models on the calculation of value-at-risk (VaR) for the loss of a credit portfolio with many obligors. The study covers linear and nonlinear factor models focusing on the importance of tail dependence....
Two models of stochastic loss given default
We propose two structural models for stochastic loss given default that allow the credit losses of a portfolio of defaultable financial instruments to be modeled. The credit losses are integrated into a structural model of default events accounting for...
Double-exponential jump-diffusion processes: a structural model of an...
We extend the framework of Leland, who proposed a structural model of rollover debt structure in a Black-Scholes framework.We apply this to the case of a doubleexponential jump-diffusion process, considering a trade-off model with firm risk, risk-free...
Modeling exposure at default and loss given default: empirical approaches...
The Basel Accords have created the need to develop and implement models for probability of default (PD), loss given default (LGD) and exposure at default (EAD). Although PD is quite well researched, LGD and EAD lag behind in terms of both theoretical...
Credit loss and systematic loss given default
This paper presents a simple and effective model of systematic loss given default. It is simple in that it uses only parameters appearing in standard models. It is effective in that it survives statistical testing against more complicated models. Download...
New risk analysis tools with accounting changes: adjusted Z-score
Altman's Z-score has been used for several decades to calculate bankruptcy probability. However, the conventional Z-score fails to consider possible earnings manipulations that could change the fundamental accounting figures and their implications for...
The impact of counterparty risk on credit default swap pricing dynamics...
As observed throughout the financial crisis in 2008, credit default swaps (CDSs) are exposed not only to the credit risk of the underlying reference entity but also to the counterparty risk of the protection seller. Conducting a panel regression analysis...
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