The market for credit derivatives is growing rapidly. The credit derivative market’s global size was estimated to be $100 billion to $200 billion in 1996. The British Bankers Association estimated that the size was $1.6 trillion in 2001. Now the size is about $62 trillion [10]. The demand is strong because credit derivatives provide varieties that can fit different clients. The fundamental cred...

A market with defaultable bonds where the bond dynamics is in a Heath-Jarrow-Morton setting and the forward rates are driven by an infinite number of Lévy factors is considered. The setting includes rating migrations driven by a Markov chain. All basic types of recovery are investigated. We formulate necessary and sufficient conditions (generalized HJM conditions) under which the market is arbi...

Abstract We show that the path of inflation under quantitative easing policies target interest rates, is determinate in presence default. achieve this through different payoff profiles a collateralised defaultable bond achieves states nature with distinct default outcomes. In model, heterogeneous households trade and other shorter maturity risk-free bonds to maximize their intertemporal utility...

Corporate defaults may be triggered by some major market news or events such as financial crises or collapses of major banks or financial institutions. With a view to develop a more realistic model for credit risk analysis, we introduce a new type of reduced-form intensity-based model that can incorporate the impacts of both observable “trigger” events and economic environment on corporate defa...

A new approach to credit risk modelling is introduced that avoids the use of inaccessible stopping times. Default events are associated directly with the failure of obligors to make contractually agreed payments. Noisy information about impending cash flows is available to market participants. In this framework the market filtration is modelled explicitly, and is assumed to be generated by one ...

This paper investigates the risk premia of U.S. corporate and Treasury bonds. Using excess return regressions, two risk factors are derived from yield and macroeconomic data: a priced term risk factor and a priced credit risk factor explain half of the variation in one-year corporate and Treasury excess returns. The information of the term risk factor is not represented by major yield character...

Using data on all corporate bond loans by one of the world’s largest custodian banks, we study the main determinants of shorting costs as measured by rebate rate specialness. We find that 3.0% of corporate bonds are on loan, and 11% of loaned bonds have substantial shorting costs above 50 basis points. In the cross section, specialness is higher for bonds that are of worse credit rating, higher...

This paper explores the use of an intuitive decision support model for evaluating and selecting corporate bonds. The model is based on the Analytic Hierarchy Process (AHP), which enables an individual investor and a portfolio manager to identify the relative impacts of multiple criteria derived from the assessment of a particular investment environment. It also allows the pairwise comparisons o...

Corporate bond markets may suffer from investors’ lack of competence in screening out low-quality issuers. We use data from the Israeli capital market in 1999-2009 to investigate the quality of corporate bond issuers and the role of the institutional investors in the screening process in the corporate bond market. The findings suggest that higher quality firms were more likely to issue bonds, b...