Default unification represents a fundamental extension of the common unification operation, where even in case of inconsistency between the information to be merged, there will always be a result. As default unification is no longer a commutative operation, a distinction is made between the argument containing default information, the background, and the other argument consisting of non-default...

We address the problem of reasoning about preferences among properties (outcomes, desiderata, etc.) in Reiter’s default logic. Preferences are expressed using an ordered default theory, consisting of default rules, world knowledge, and an ordering, reflecting preference, on the default rules. In contrast with previous work in the area, we do not rely on prioritised versions of default logic, bu...

A general and efficient method for valuing credit derivatives based on multiple entities is developed in an affine framework. This includes interdependence of market and credit risk, joint credit migration and counterparty default risk of multiple firms. As an application we provide closed form expressions for the joint distribution of default times, default correlations, and default swap sprea...

Observation of historical default rates supports the idea that default events (and, more generally, all indicators of credit quality and transition) are correlated. Default correlations are caused by similar economic conditions and, within a sector, by industry-specific reasons. However, incorporating default correlation in any portfolio credit risk analysis is difficult because of the lack of ...

We propose a dynamically consistent framework that allows joint valuation and estimation of stock options and credit default swaps written on the same reference company. We model default as controlled by a Poisson process with a stochastic default arrival rate. When default occurs, the stock price drops to zero. Prior to default, the stock price follows a continuous process with stochastic vola...