Volatility patterns of CDS, bond and stock markets before and during
... financial institutions in the United States and Europe. The market turmoil severely affected especially those internationally active banks with large exposures to mortgage-related assetbacked securities (ABSs) or collateralized debt obligations (CDOs). All banks had to deal with an uncertain and mor ...
... financial institutions in the United States and Europe. The market turmoil severely affected especially those internationally active banks with large exposures to mortgage-related assetbacked securities (ABSs) or collateralized debt obligations (CDOs). All banks had to deal with an uncertain and mor ...
The Determinants of Corporate Bond Yield Spreads in
... 1.2. Sovereign Risk and the “Sovereign Ceiling” Rule Empirically, a high correlation between sovereign defaults and company defaults has been observed in the past, that is, it has been very hard for companies to avoid default once the sovereign of their incorporation had defaulted. This historical ...
... 1.2. Sovereign Risk and the “Sovereign Ceiling” Rule Empirically, a high correlation between sovereign defaults and company defaults has been observed in the past, that is, it has been very hard for companies to avoid default once the sovereign of their incorporation had defaulted. This historical ...
A Stochastic Price Duration Model for Estimating High
... ditional information. In particular, we consider trade durations. The asymmetric information models by Easley and O’Hara (1987) suggest that trades durations have an interdependent relationship with volatility. Specifically, since a short trade duration suggests information events and an increased ...
... ditional information. In particular, we consider trade durations. The asymmetric information models by Easley and O’Hara (1987) suggest that trades durations have an interdependent relationship with volatility. Specifically, since a short trade duration suggests information events and an increased ...
The Credit Spread Puzzle - Myth or Reality?
... as the sum of interest payments to debt, dividend payments to equity, and net stock repurchases divided by firm value. Asset volatility is not directly observable and we extract it from equity volatility and leverage as we will explain in Section 2.2. Equity volatility is an annualized estimate base ...
... as the sum of interest payments to debt, dividend payments to equity, and net stock repurchases divided by firm value. Asset volatility is not directly observable and we extract it from equity volatility and leverage as we will explain in Section 2.2. Equity volatility is an annualized estimate base ...
The remainder of the paper is as follows
... to find that a firm seven standard deviations away from default actually defaults within one year 0.05% of the time. In this example, KMV would report this firm to have an EDF of 0.05% (five basis points). An alternative approach would be to use the methodology of Bharath and Shumway (2008) to creat ...
... to find that a firm seven standard deviations away from default actually defaults within one year 0.05% of the time. In this example, KMV would report this firm to have an EDF of 0.05% (five basis points). An alternative approach would be to use the methodology of Bharath and Shumway (2008) to creat ...
How different is the regulatory capital from the economic capital
... credit risk in asset portfolios has been one of the major causes of bank distress”. However, the calibration of the IRB formulas was allegedly chosen to match the economic risk in a credit portfolio that should be very-well diversified across industries. Consequently, regulatory formulas do not take ...
... credit risk in asset portfolios has been one of the major causes of bank distress”. However, the calibration of the IRB formulas was allegedly chosen to match the economic risk in a credit portfolio that should be very-well diversified across industries. Consequently, regulatory formulas do not take ...
Is Default Risk Priced in Equity Returns?
... theoretical argument that the positive value premium and the negative distress premium result from using the risk-neutral and real default probability, respectively. His model also predicts that firms with higher risk-neutral default probabilities, such as those revealed from credit default swap pre ...
... theoretical argument that the positive value premium and the negative distress premium result from using the risk-neutral and real default probability, respectively. His model also predicts that firms with higher risk-neutral default probabilities, such as those revealed from credit default swap pre ...
What Does Measured FDI Actually Measure?
... of foreign exchange intervention, and assuming that the current account moves slowly, changes in gross inflows during the quarter must roughly equal changes in gross outflows for the foreign exchange market to clear. Thus, if FDI was literally the only source of gross inflows and gross outflows, the ...
... of foreign exchange intervention, and assuming that the current account moves slowly, changes in gross inflows during the quarter must roughly equal changes in gross outflows for the foreign exchange market to clear. Thus, if FDI was literally the only source of gross inflows and gross outflows, the ...
OPTIMAL TAXATION WITH ENDOGENOUS DEFAULT UNDER INCOMPLETE MARKETS
... the flexibility that comes from the option to default and partial payments, reflected on the pay-off of the debt. In a benchmark case, with quasi-linear utility, i.i.d. process for the government expenditure, I characterize, analytically, the determinants of the optimal default decision, and its ef ...
... the flexibility that comes from the option to default and partial payments, reflected on the pay-off of the debt. In a benchmark case, with quasi-linear utility, i.i.d. process for the government expenditure, I characterize, analytically, the determinants of the optimal default decision, and its ef ...
An Analysis of Default Risk in the Home Equity Conversion
... Home equity is an illiquid asset that can typically only be extracted through home sale or mortgaging the property. However, reverse mortgages provide a mechanism for senior households to withdraw equity from their home without home sale or monthly mortgage payments. The most prevalent form of rever ...
... Home equity is an illiquid asset that can typically only be extracted through home sale or mortgaging the property. However, reverse mortgages provide a mechanism for senior households to withdraw equity from their home without home sale or monthly mortgage payments. The most prevalent form of rever ...
General Black-Scholes models accounting for increased market
... volatility2 for values of the fraction of the market portfolio subject to portfolio insurance varying between 1% and 20%. In similar vein, Frey and Stremme [11] present a discrete time and then a continuous time economy of reference traders (Black-Scholes upholders) and program traders (portfolio in ...
... volatility2 for values of the fraction of the market portfolio subject to portfolio insurance varying between 1% and 20%. In similar vein, Frey and Stremme [11] present a discrete time and then a continuous time economy of reference traders (Black-Scholes upholders) and program traders (portfolio in ...
The Employment Cost of Sovereign Default
... rising bond spreads in Portugal and Spain and a sovereign default in Greece. In all three countries, the crisis was accompanied by high levels of unemployment. Firm-level evidence documents that sovereign risk depresses job vacancies via bank lending, suggesting a link between a government’s debt po ...
... rising bond spreads in Portugal and Spain and a sovereign default in Greece. In all three countries, the crisis was accompanied by high levels of unemployment. Firm-level evidence documents that sovereign risk depresses job vacancies via bank lending, suggesting a link between a government’s debt po ...
In this paper, we develop a theory for the time varying takeover
... be too optimistic or too pessimistic given other parameters. The second method relates volatility expectations and expectations of sample minimum and maximum returns to unobserved implicit tail index of the return distribution using extreme value theory. For example, continuing with the previous 8% ...
... be too optimistic or too pessimistic given other parameters. The second method relates volatility expectations and expectations of sample minimum and maximum returns to unobserved implicit tail index of the return distribution using extreme value theory. For example, continuing with the previous 8% ...
Does austerity pay off?
... considerably across time and countries. In some instances they are virtually zero, in others they are as high as 25 percentage points. The large number of observations allows us to compute the empirical density function. It increases sharply for low levels of the premium as the number of observation ...
... considerably across time and countries. In some instances they are virtually zero, in others they are as high as 25 percentage points. The large number of observations allows us to compute the empirical density function. It increases sharply for low levels of the premium as the number of observation ...
Dynamic Volatility Targeting
... adjust beta exposure, and hedge ratios without introducing turnover into the long portfolio and without sacrificing alpha • Are inexpensive in normal interest rate and credit environments • Reduce the odds of shortfall ...
... adjust beta exposure, and hedge ratios without introducing turnover into the long portfolio and without sacrificing alpha • Are inexpensive in normal interest rate and credit environments • Reduce the odds of shortfall ...
MORTGAGE TERMINATIONS, HETEROGENEITY AND THE EXERCISE OF MORTGAGE OPTIONS B Y
... Ž1995..; these levels are functions of c, d, B, k and the parameters governing the stochastic processes for r and H. Due to the jointness of the options, there are two pairs of r and H that trigger termination. There are levels of r that trigger default as well as prepayment, and levels of H that tr ...
... Ž1995..; these levels are functions of c, d, B, k and the parameters governing the stochastic processes for r and H. Due to the jointness of the options, there are two pairs of r and H that trigger termination. There are levels of r that trigger default as well as prepayment, and levels of H that tr ...
Macroeconomic stress testing of a corporate credit portfolio Magister Scientiae By
... Refer to an individual or partnership which is unable to pay its debt and is placed under final sequestration. ...
... Refer to an individual or partnership which is unable to pay its debt and is placed under final sequestration. ...
Investment risks - Lecture 10: Asset allocation methods
... portfolio with the highest Sharpe ratio of (Rp - Rf)/(Vol of risky portfolio). When we only have two risky assets, as in this case, it is easy to construct this graph by simply calculating the portfolio returns for all possible weights. When we have more than 2 assets, it becomes more difficult to r ...
... portfolio with the highest Sharpe ratio of (Rp - Rf)/(Vol of risky portfolio). When we only have two risky assets, as in this case, it is easy to construct this graph by simply calculating the portfolio returns for all possible weights. When we have more than 2 assets, it becomes more difficult to r ...
NBER WORKING PAPER SERIES TO 2007 Patrick Bajari
... uing to make mortgage payments falls below the utility from defaulting or if the household becomes liquidity-constrained. ...
... uing to make mortgage payments falls below the utility from defaulting or if the household becomes liquidity-constrained. ...
A Model-Based Approach to Constructing Corporate Bond Portfolios
... much larger than in this study. Thus, the approach and results in this paper are much more realistic and closer to actual industry practice. In addition to the long-only approach used in this paper and in our previous work, we have also demonstrated that our quantitative approach can be successfully ...
... much larger than in this study. Thus, the approach and results in this paper are much more realistic and closer to actual industry practice. In addition to the long-only approach used in this paper and in our previous work, we have also demonstrated that our quantitative approach can be successfully ...
Macroeconomic Factors and the Correlation of Stock and Bond
... The primary contribution of this paper is that it tests the link between macroeconomic factors and the stock-bond correlation. We also expand the usual scope of this literature from U.S. (and occasionally U.K.) markets to all G7 markets, which enhances the robustness of the conclusions. Moreover, we ...
... The primary contribution of this paper is that it tests the link between macroeconomic factors and the stock-bond correlation. We also expand the usual scope of this literature from U.S. (and occasionally U.K.) markets to all G7 markets, which enhances the robustness of the conclusions. Moreover, we ...
Belief Regimes and Sovereign Debt Crises
... A similar pattern emerges from our sample of emerging markets. In particular, we compute the realized returns on a value-weighted portfolio of actively traded, emerging country bonds, specifically the EMBI+ index constructed by JP Morgan. Table 3 reports the return for the full sample period the ind ...
... A similar pattern emerges from our sample of emerging markets. In particular, we compute the realized returns on a value-weighted portfolio of actively traded, emerging country bonds, specifically the EMBI+ index constructed by JP Morgan. Table 3 reports the return for the full sample period the ind ...
PDF
... cular, it was shown that using the mean and Gini's mean difference as summary statistics of the distribution of a risky investment permits the user to derive necessary conditions for stochastic dominance, enabling him to discard from the efficient set prospects that are stochastically dominated ...
... cular, it was shown that using the mean and Gini's mean difference as summary statistics of the distribution of a risky investment permits the user to derive necessary conditions for stochastic dominance, enabling him to discard from the efficient set prospects that are stochastically dominated ...
accounting and market based risk measures as predictors of bank
... ability to influence the economic consistency of markets and institutions. For this analysis, a vital part is the banking sector because the banks play a significant role in financial intermediation and have highly leveraged operations. In the previous literature, there are several accounting and ma ...
... ability to influence the economic consistency of markets and institutions. For this analysis, a vital part is the banking sector because the banks play a significant role in financial intermediation and have highly leveraged operations. In the previous literature, there are several accounting and ma ...