The securitization of financial assets is a form of structured finance, developed by the U.S. banking world in the early 1980’s (in Mortgage-Backed-Securities format) in order to reduce regulatory capital requirements by removing and transferring risk from the balance sheet to other parties. Today, virtually any form of debt obligations and receivables has been securitized, resulting in an appr...

This paper provides a simple analytic formula for valuing default swaps with correlated market and credit risk. We illustrate the numerical implementation of this model by inferring the default probability parameters implicit in default swap quotes for twenty two companies over the time period 8/21/00 to 10/31/00. For comparison, with also provide implicit estimates for the standard model (a sp...

This article establishes a family of models for pricing interest rate sensitive claims when the underlying interest rate is driven by a two state variable GARCH process. Analytical solutions are established for the case when the innovations in the short rate are combinations of a normal and chi-squared random variables and the volatility of rates takes on a special GARCH form. GARCH models that...

A new test of a wide class of interest rate models is proposed and applied to a recently developed quantum field theoretic model and the industry standard Heath-Jarrow-Morton model. This test is independent of the volatility function unlike other tests previously proposed in the literature. It is found that the HJM model is inconsistent with the data while the quantum field theoretic model is i...

A new test of a wide class of interest rate models is proposed and applied to a recently developed quantum field theoretic model and the industry standard Heath-Jarrow-Morton model. This test is independent of the volatility function unlike other tests previously proposed in the literature. It is found that the HJM model is inconsistent with the data while the quantum field theoretic model is i...