Extracting Risk Measures from Credit Derivatives and Bonds

By: Jorge A Chan-Lau

The previous chapter reviewed different methods for evaluating the solvency or probability of default of a single institution. These methods rely on fundamental information about the institution, gathered mainly from financial statement data and publicly available ratings, and complemented by economic data reflecting the stage of the business cycle.

In many circumstances, however, fundamental information may not be sufficient. Financial statements are released with substantial lags, leading to

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