The specification of a realistic dependence structure is key to the pricing of multi-name credit derivatives. We value small k th-to-default CDS baskets in the presence of asset correlation and default contagion. Using a first-passage framework, firm values are modeled as correlated geometric Brownian motions with exponential default thresholds. Idiosyncratic links between companies are incorpo...

This paper develops a two-dimensional structural framework for valuing credit default swaps and corporate bonds in the presence of default contagion. Modelling the values of related firms as correlated geometric Brownian motions with exponential default barriers, analytical formulae are obtained for both credit default swap spreads and corporate bond yields. The credit dependence structure is i...

This study presents three findings concerning the mechanisms of depth perception. First, the shape of the three-dimensional percept evoked by two-frame motion is defined solely by the rotation component around an axis in the frontoparallel plane; the visual system assigns a default value to this rotation component to arrive at a unique solution. Second, when the visual axes of two eyes are almo...

We survey both academic and proprietary models to examine how macroeconomic and systematic risk effects are incorporated into measures of credit risk exposure. Many models consider the correlation between the probability of default (PD) and cyclical factors. Few models adjust loss rates (loss given default) to reflect cyclical effects. We find that the possibility of systematic correlation betw...

We survey both academic and proprietary models to examine how macroeconomic and systematic risk effects are incorporated into measures of credit risk exposure. Many models consider the correlation between the probability of default (PD) and cyclical factors. Few models adjust loss rates (loss given default) to reflect cyclical effects. We find that the possibility of systematic correlation betw...

The securitization of subprime mortgages in instruments like mortgage-backed securities and collateralized debt obligations is one of the key ingredients to the current financial crisis. During 2007 and 2008, subprime defaults increased sharply, displaying high serial correlation in their arrival. Subprime default events depend on house price changes. We establish a link between the dynamics of...

In this article, a framework for the joint modelling of default and recovery risk in a portfolio of credit risky assets is presented. The model especially accounts for the correlation of defaults on the one hand and correlation of default rates and recovery rates on the other hand. Nested Archimedean copulas are used to model different dependence structures. For the recovery rates a very flexib...

Recently, human brain activity during a resting-state has attracted increasing attention. Several studies have found that there are two networks: the default mode network and its anti-correlation network. Some studies have subsequently showed that the functions of brain areas within the default mode network are crucial in human mental activity. To further discern the brain default mode network ...

Dependence among defaults both across assets and over time has proven to be an important characteristic of financial risk. A Bayesian approach to default rate estimation is proposed and illustrated using a prior distributions assessed from an experienced industry expert. Two extensions of the binomial model, most common in applications, are proposed. The first allows correlated defaults yet rem...