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A contagion process with self-exciting jumps in credit risk applications

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Credit Derivatives in an Affine Framework

Damir Filipovic, Li Chen

An efficient method for valuing credit derivatives based on three entities is developed in an affine framework. This includes interdependence of market and credit risk, joint credit migration and counterparty default risk of three forms. As an application ...

2007

Portfolio optimization of hydroelectric assets subject to financial indicators

Nikolaos Iliadis, Simon Granville

The objective of this article is to present a benchmarking of financial indicators implemented in hydroelectric stochastic risk management models. We present three model formulations using a tree approach for hydroelectric optimization using three procedur ...

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Capital structure, credit risk, and macroeconomic conditions

Erwan Morellec

This paper develops a framework for analyzing the impact of macroeconomic conditions on credit risk and dynamic capital structure choice. We begin by observing that when cash flows depend on current economic conditions, there will be a benefit for firms to ...

2006

Selling Less Information for More: Garbling with Benefits

Thomas Alois Weber

The expected value of information in a standard portfolio investment problem with ex-post payment can increase when the information is garbled prior to its sale. Distorting the information helps to resolve the incentive problem decreasing the buyer’s defau ...

2004

Capital structure and asset prices: Some effects of bankruptcy procedures

Erwan Morellec

We examine the impact of the U.S. bankruptcy procedure on the valuation of corporate securities and capital structure decisions. We provide closed-form solutions for corporate debt and equity values when defaulting firms can either liquidate their assets o ...

2004

A Mixed Approach to Modeling Default Risk

Damir Filipovic, Li Chen

Structural and reduced-form models are two well-established approaches to modelling a firm’s default risk. Here, Li Chen, Damir Filipovic and Vincent Poor develop a new default risk modelling strategy based on combining these two frameworks in order to ove ...

Risk2004

The Determinants of Credit Spread Changes

Pierre Collin Dufresne

Using dealer's quotes and transactions prices on straight industrial bonds, we investigate the determinants of credit spread changes. Variables that should in theory determine credit spread changes have rather limited explanatory power. Further, the residu ...

2001

Do Credit Spreads Reflect Stationary Leverage Ratios?

Pierre Collin Dufresne

Most structural models of default preclude the firm from altering its capital structure. In practice, firms adjust outstanding debt levels in response to changes in firm value, thus generating mean-reverting leverage ratios. We propose a structural model o ...

2001