We develop a Bayesian approach to estimating duration models and apply it to the default data of high yield bonds. The instantaneous probability of a firm completing Chapter 11 increases up to the twenty-first month in Chapter 11 then declines towards zero.  1999 Elsevier Science S.A. All rights reserved.

The relation between physical probabilities (rating) and risk-neutral probabilities (pricing) is derived in a large market with a quasi-factor structure. Factor sensitivities and default probabilities can be estimated for all kinds of credits on historical rating data. Since factor prices are obtainable from market data, the model allows the pricing of non-marketable credits and structured prod...

BACKGROUND Tuberculosis is a serious public health problem worldwide. It is the leading cause of death amongst people living with HIV, and default from tuberculosis (TB) treatment in people living with HIV increases the probability of death. The aim of this study was to estimate the survival probability of people living with HIV who default treatment for TB compared to those who complete the tr...

In this paper, we aim at 1. giving formulas of prices and replicating-strategies of defaultable securities(e.g., bonds, swaps, derivatives) in incomplete market, and 2. giving “solvable” examples of quantile hedging strategies in incomplete market. Considering an incomplete market that consists of tradable assets and an unhedgeable defaultable security, whose non-predictable default time has st...

We develop a dynamic nonlinear, noisy REE model of credit risk pricing under dispersed information that can theoretically and quantitatively account for the credit spread puzzle. The first contribution is a sharp analytical characterization of the dynamic REE equilibrium and its comparative statics. Second, we show that the nonlinearity of the bond payoff in the environment with dispersed infor...

We extend Lando’s formula for pricing credit risky derivatives to models where a firm’s characteristics and its default point process need not be conditionally independent. This result is presented under a simple filtration expansion framework with basic probability techniques.

In this paper we develop structural first passage models (AT1P and SBTV) with time-varying volatility and characterized by high tractability, moving from the original work of Brigo and Tarenghi (2004, 2005) [19] [20] and Brigo and Morini (2006)[15]. The models can be calibrated exactly to credit spreads using efficient closed-form formulas for default probabilities. Default events are caused by...