Warga, and the seminar participants at Indiana University and the Federal Reserve Bank of Kansas City. We also thank Klara Parrish for research assistance. The views expressed in this paper are those of the authors and do not necessarily reflect the views of the Federal Reserve Bank of Kansas City or the Federal Reserve System. Abstract This paper uses cointegration to model the time-series of ...

We study a three-firm contagion model with counterparty risk and apply this model to price defaultable bonds and credit default swap CDS . This model assumes that default intensities are driven by external common factors as well as other defaults in the system. Using the “total hazard” approach, default times can be generated and the joint density function is obtained. We represent the pricing ...

This paper analyzes the association between aggregate default and recovery rates on credit assets, and seeks to empirically explain this critical relationship. We examine recovery rates on corporate bond defaults, over the period 1982-2002. Our econometric univariate and multivariate models explain a significant portion of the variance in bond recovery rates aggregated across all seniority and ...