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HY and IG CDX Indexes

Where can I get a "tradable quote" and daily historical data on CDX.NA.IG and CDX.NA.HY indexes other than Bloomberg.
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0 answers
30 views

Shock to a system of CDS spread values

Assume we have a system that is built on the CDS spread values. If we want to shock the system, how can we define the shock? For instance, we can define it as the increase in the spread. Of course a ...
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3 votes
0 answers
54 views

Close-out in practice: default settlements and counterparty models

Any model on counterparty risk for derivative contracts needs to make an assumption on the close-out convention, that is the rule used to determine at which value a defaulted derivative transaction ...
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0 answers
30 views

Default rate short majurity

What is the best way of measuring default rates for a portfolio which contains mostly loans which are either 30, 60 or 90 days term? Normally I use the following methodology Look at all loans which ...
0 votes
1 answer
141 views

US Market CDS Data during the Corona Pandemic for Bachelor Thesis

I need CDS spread data over the US market. I would need data for an exact period. I can't find the data I need through Bloomberg. Does anyone by any chance have CRSP or WRDS and could help me out?
1 vote
1 answer
151 views

Joint probability of default

Had a couple of questions from Jorion's FRM book (5th edition, page 438, Table 18.2 shown below). The book has a very stylized example as shown in the table below. The example shows how to calculate ...
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4 votes
2 answers
697 views

Why would a default bond still being traded 1 year after the maturity date

for example, XS0458566071. it is supposed to mature on 21th Oct 2019, but it is still being traded in 2020 with price of around 1 euro
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0 votes
2 answers
138 views

Expected Loss on a Portfolio, which contains an asset and a default protection contract, due to credit defaults

A portfolio consists of one (long) 100 million asset and a default protection contract on this asset. The probability of default over the next year is 10% for the asset, 20% for the counterparty that ...
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0 votes
1 answer
176 views

Calculating the cumulative probability of default from recovery rate, yield and coupon rate

I have the following details: A 10-year U.S.Treasury strip has a yield of 6% and a 10-year zero issued by XYZ Inc, rated A by S&P and Moody's, has 7% (semi-annual compounding). Assuming a recovery ...
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1 vote
0 answers
93 views

Forward contract on a defaultable coupon bearing bond

Notations : $P(t,T)$ : the $t$-price of a coupon bearing bond paying coupons $C_i$ at $T_i$ maturing at $T$ $B(t,T)$ : the $t$-price of a non defaultable zero coupon bond paying 1 at $T$ $P_r(t,T)$ : ...
6 votes
2 answers
168 views

Solution for a SDE for a Bond found in Bugard & Kjaer

I'm going over the paper -Partial Differential Equation Representation of Derivatives with Bilateral Counterparty Risk and Funding Costs- from Burgard and Kjaer. There the following SDE is given for ...
1 vote
1 answer
170 views

Bayesian analysis in R for low default portfolios

I want to apply the knowledge of this paper (Bayesian estimation of probabilities of default for low default portfolios, by Dirk Tasche) in R, but I can't find the right bayesian package and functions ...
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3 votes
2 answers
212 views

Expected currency depreciation given sovereign default

A country may default on its government debt (in any sense, e.g. miss a payment) within the next year. How would one estimate the expected (under the risk-neutral measure) currency depreciation by ...
2 votes
0 answers
174 views

Methods for calculating Expected shortfall

Let B1, B2 be two defaultable zero-coupon bonds maturing in 1 year, each with a face value of $100. Assume: each bond is priced at 90 dollars each bond has a 4% probability to default within 1 year ...
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2 votes
2 answers
64 views

Are Credit Default Swaps used by B2B Service providers or Vendors?

I understand CDS's are often employed in trading strategies between institutions - That is well publicized. What isn't as publicized is how other customers might look to use a CDS. I work in an ...
2 votes
1 answer
64 views

Annualized actual probability

I have a dataset of bank loans over different periods. Let's say that most of the loans have a horizon over 5,10,15 years. I obtain the actual default rate over these different type of loans. I would ...
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2 votes
0 answers
170 views

LGD performing model - LGD estimate vs LGD observed

LGD (Loss Given Default) performing model is developed on through the cycle sample which consists of loans in default. What I want is to compare LGD estimate and LGD observed (realized). LGD observed ...
1 vote
0 answers
70 views

How to determine the default probability of a county in a bond that is not in its native currency?

Disclaimer: This post is cross posted in here also. Consider the following case: Country P uses the currency Euro and gives p percent interest on a one year bond issued in Euro. Country Q uses the ...
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1 answer
717 views

conditional probability of default

I would like to ask the following question. I would appreciate if someone could help me out. On what argument is based that states that conditional default rates ( loans of corporate borrowers) ...
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2 votes
3 answers
2k views

Accrual in Default Derivation of Credit CDS Curve

In Trading Credit Curves Part I by JP Morgan we have that each point on a credit (CDS) curve represents: $$PV(\text{Fee Leg}) = PV(\text{Contingent Leg})$$ which is $$S_n \sum_{i=1}^{n}\Delta_i ...
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3 votes
0 answers
117 views

How can we price an option taking into account the "issuer risk"?

I'm trying to take a closer look to option pricing in a risky environment. Let's say a firm $A$ sells me an (European) option on an underlying $S$ (which of course can be any other financial product ...
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1 vote
0 answers
93 views

Can hazard rate intensity models be used with bonds?

We are trying to build a risk neutral PD Model for institutions without CDS. In Malz's "Financial Risk Management: Models, History and Institutions", Chapter 7, its said that we can extract the ...
3 votes
1 answer
139 views

Simplifying an expectation function of default time and rates

I have the following expectation to calculate : $$ \mathbf{E}\left[ e^{\int_{t_0}^{\tau} r_s ds} \mathbf{1}_{\{\tau < T\}}\right] $$ More precisely, I want to show that : $$ \mathbf{E}\left[ e^{\...
3 votes
3 answers
1k views

Probability of default

I have to calculate probability of default (PD) rates for our clients (I am working in a Bank) based on clients' financials. Could you, please, advise me how to do that? I think we have two Options: ...
0 votes
0 answers
110 views

probability of default for Kolomogorov backward equation

suppose $$dA = \mu Adt + \sigma AdX.$$ is a geometric Brownian motion. One says that the Probability $P(A,t)$ of $A$ reashing the critical level $K(t)$ before maturity: $$\dfrac{\partial P}{\partial ...
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1 vote
0 answers
75 views

Pricing defaultable asset with finite maturity

Assume a stochastic process $X_0 = 0$ and $X_t = \nu t + \sigma W_t$ where $W_t$ is standard Brownian motion and $\nu$ is a drift (can have $\nu \leq 0$ if necessary, but prefer it to be general), ...
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1 vote
3 answers
432 views

cva for a collateralised swap

For a swap thats fully collateralised once a day, i suppose that the cva measures risk only for the intraday chance of counterparty default? Surely thats tiny enough to be neglible, or am i missing ...
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0 votes
1 answer
544 views

Probability default calculation

I want to calculate default of probability of internal ratings for a particular bank. I have only the following data: Liquidity Ratio short-term assets / short-term liabilities = 2.6 Profitability ...
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2 votes
0 answers
109 views

Calibration of intensity model

I could use some advice on calibration of stochastic intensity models. I am thinking that the CIR model is most suitable, as it can not take negative values (when feller condition is satisfied). I ...
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2 votes
0 answers
86 views

How are CDS prices calculated for financial institutions?

If you need to estimate the fair price of a credit default swap on a financial institution, can it be done? Typical structural models tend to break down for the complex debt and asset characteristics ...
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1 vote
0 answers
91 views

Fair Price CDS Spread for a Bank

I have been using CreditGrades to calculate fair one year CDS spreads for firms. However, the authors of the model explicitly say that the model does not hold for banks or financial firms. If I need ...
  • 1,034
8 votes
2 answers
2k views

KMV-Merton Probabilties of Default vs Moody's EDF

Moody's used to publish probability of default estimates from their Moody's EDF model, but they have temporarily discontinued it. I understand that the Moody's EDF model is closely based on the Merton ...
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1 vote
0 answers
69 views

Alternatives to CDSs for default term structure?

The CDS market seems to be drying up, funding&liquidity issues are now prevalent over credit, so other sources for default probabilities are needed. What else is commonly used to obtain a ...
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7 votes
1 answer
166 views

Best simplified way to model volatility in returns of an investment in a risky fixed income asset

I am currently working on a project where I have analyzed a certain category of fixd income instruments, and I now have the gross aggregate yield as well as the theoretical gross-aggregate default-...
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3 votes
1 answer
234 views

Summary statistic for the average probability of default?

I have the following scenario: Let $X_i$ denote the event where some institution $i$ 'defaults' (don't worry about the exact definition of a default here, it is not relevant to the question at hand). ...
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3 votes
0 answers
303 views

default probability

Suppose the hazard rate is $\lambda$ the default probability density function follow exponential $f(t) = \lambda e^{-\lambda t}$ and cumulative probability function is $F(t) = 1 - e^{-\lambda t}$ ...
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9 votes
3 answers
4k views

How is the default probability implied from market implied CDS spreads for CVA/DVA calculation?

From point 38 on P.17 the default probability can be implied from market implied CDS spreads. "Macro Surface" method is mentioned, but I cannot get any clue of what it is? Where do I get the acedemic ...
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2 votes
0 answers
430 views

Obtaining the default probability and recovery rate for each credit rating?

I have the following questions for obtaining the credit rating: Given that I have cumulative default probability of each credit rating from Global Corporate Average Cumulative Default Rates (1982-...
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1 vote
0 answers
1k views

Question about Merton model to estimate default probability and recovery rate of the company

I recently come across Merton's model to estimate the default probability and recovery rate of the company. Here is the inputs ...
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2 votes
1 answer
3k views

What is the difference between a recovery swap and a CDS?

As I understand it, recovery swaps and CDS are both used to provide hedging against the default risk of a loan. What is the difference between them?
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2 votes
2 answers
1k 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 ...
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3 votes
0 answers
69 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" ...
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7 votes
1 answer
801 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 ...
7 votes
1 answer
634 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 ...
13 votes
1 answer
6k 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 ...
11 votes
1 answer
5k 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?
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