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2
votes
1answer
77 views
What is the difference between a recovery swap and a CDS?
As I understand it, recovery swaps and CDS are both used to privide hedging against the default risk of a loan.
What is the difference between them?
2
votes
2answers
134 views
Hedging credit risk using Put equity options
I am looking for some paper or similar which deal with this topic: hedging bankruptcy on firm's debt using Put options written on that firm's equity price.
This should be based on the assumption that ...
3
votes
0answers
40 views
Credit spreads vs default events dependence
Reading this note it strikes me that credit spreads and defaults seem not to be commonly modeled jointly (e.g. more or less directly in structural models), but at best with some kind of "ex post" ...
3
votes
0answers
68 views
is there a mapping from Altman Z-score for private companies to bond ratings or probability of default?
On wikipedia, there is a formula to calculate the Altman Z-score for private companies:
Z-score estimated for private firms:
T1 = (Current Assets − Current Liabilities) / Total Assets
T2 = Retained ...
4
votes
1answer
142 views
Are there any well known methods of testing through-the-cycle rating systems?
Rating systems, as defined by the Basel II Accord, can be classified into two broad types - through-the-cycle (TTC) or point-in-time (PIT) - and the probability of default predicted by such a system ...
5
votes
1answer
985 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?
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 ...
