A general and efficient method for valuing credit derivatives based on multiple entities is developed in an affine framework. This includes interdependence of market and credit risk, joint credit migration and counterparty default risk of multiple firms. As an application we provide closed form expressions for the joint distribution of default times, default correlations, and default swap sprea...

Observation of historical default rates supports the idea that default events (and, more generally, all indicators of credit quality and transition) are correlated. Default correlations are caused by similar economic conditions and, within a sector, by industry-specific reasons. However, incorporating default correlation in any portfolio credit risk analysis is difficult because of the lack of ...

We propose a dynamically consistent framework that allows joint valuation and estimation of stock options and credit default swaps written on the same reference company. We model default as controlled by a Poisson process with a stochastic default arrival rate. When default occurs, the stock price drops to zero. Prior to default, the stock price follows a continuous process with stochastic vola...

Common Failings: How Corporate Defaults are Correlated We develop, and apply to data on U.S. corporations from 1987-2000, tests of the standard doubly-stochastic assumption under which firms’ default times are correlated only as implied by the correlation of factors determining their default intensities. This assumption is violated in the presence of contagion or “frailty” (unobservable covaria...

Source URL (retrieved on 2017-07-07 01:02): http://www.inf.u-szeged.hu/munkatarsaknak/dohanyzasi-rend Links: [1] http://www.inf.u-szeged.hu/../sites/default/files/munkatarsaknak/1999-evi-trv.pdf [2] http://www.inf.u-szeged.hu/../sites/default/files/munkatarsaknak/2009-evi-rendelet.pdf [3] http://www.inf.u-szeged.hu/../sites/default/files/munkatarsaknak/Fotitkari_Tajekoztato_a_dohanyz as_szabaly...

Default reasoning is computationally expensive. One of the most promising ways of easing this problem and developing powerful implementations is to split a default theory into smaller parts and compute extensions in a modular, \local" way. Up to now this idea was only followed for Reiter's default logic, yet it is also relevant to other variants of default logic which have found increasing reco...