Fixed-income instruments whose price depends in large part upon judgments of the creditworthiness of a corporation or government.
12
votes
2answers
617 views
What are the limitations of Gaussian copulas in respect to pricing credit derivatives?
The practice of using Gaussian copulas in modeling credit derivatives has come under a lot of criticism in the past few years. What are the major arguments against using the copula method in this ...
12
votes
2answers
547 views
Concentration risk in credit portfolio
How do you model concentration risk of credit portfolio in IRB/Basel II framework?
8
votes
4answers
2k views
Quanto CDS modeling
What is the market standard for pricing quanto CDS (i.e. CDS which pays the contingent leg in different currency than the pricing leg)?
7
votes
3answers
333 views
Multi Factor Credit Risk Models
I am working in the area of building credit risk models. Upto this point, the model I have been focused on using the Asymptotic Single Factor Model, more popularly known as Vasicek Single Factor ...
6
votes
2answers
260 views
Stochastic recovery rates
How do I model the randomness of recovery rate given default when pricing credit derivatives?
6
votes
1answer
1k views
How to estimate probability of default from bond prices?
How do you use bond prices/yields to infer probabilities of default? I would think of it as follows:
Create a relationship between default free (e.g., Germany) and defaultable (e.g., Greece) bond ...
5
votes
1answer
949 views
What is the unit of the Distance to Default measure?
I read in a book that the distance to default of a company is "2.978".
Can anyone please tell me what is the unit implied behind this measure? Are they "years" for instance?
5
votes
2answers
214 views
How to define and measure liquidity or funding premium in credit markets?
Even companies with just a single non-callable corporate bond outstanding will often have CDS quote spreads that differ from the bond quote spread. During the 2008 crisis, there were dozens of cases ...
5
votes
2answers
489 views
Credit Valuation Adjustments — computation issues
I'm currently working on my Masters project related to accelerating Greeks computations for CVA on mixed interest rate portfolios. I would like to know about the status of technology for CVA and its ...
2
votes
0answers
219 views
What is an appropriate hedge ratio for hedging a credit instrument with equity of the same issuer?
Given a bond and a stock issued by the same issuer, what is the appropriate ratio of bond-to-stock one should hold in order to minimize the specific risk to that issuer? Equivalently, what is the ...
1
vote
1answer
253 views
What is a standard credit default swap contract and where can I find spread data? What alternatives exist to judge creditworthiness?
I'm doing some work for a company and one of my tasks is to research credit default swaps on banks and to write a page about them explaining what they are and how they're used to evaluate the banks' ...
0
votes
0answers
43 views
Jumps in the evolution of observed negative interest rates related to changes in credit ratings?
If credit risk is to be considered completed integrated in the market prices (integrated credit and market risk), the change in the credit rate will trigger the change in the interest rate/market ...
