Questions tagged [default]
The default tag has no usage guidance.
21
questions with no upvoted or accepted answers
3
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answers
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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 ...
- 7,989
3
votes
0
answers
119
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 ...
- 188
3
votes
0
answers
406
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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
$F(t) = 1 - e^{-\lambda t}$
...
- 73
3
votes
0
answers
69
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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" ...
- 1,543
2
votes
0
answers
185
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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
...
- 71
2
votes
0
answers
245
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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 ...
2
votes
0
answers
120
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 ...
- 353
2
votes
0
answers
94
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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 ...
- 1,074
2
votes
0
answers
438
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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-...
- 501
1
vote
0
answers
133
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 $T$
$P_r(t,T)$ : ...
- 338
1
vote
0
answers
71
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 ...
- 111
1
vote
0
answers
100
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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 ...
1
vote
0
answers
79
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), ...
- 111
1
vote
0
answers
95
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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 ...
- 1,074
1
vote
0
answers
70
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 ...
- 1,543
1
vote
0
answers
1k
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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
...
- 501
0
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0
answers
1k
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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.
0
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43
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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 ...
- 123
0
votes
0
answers
33
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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 ...
- 289
0
votes
2
answers
215
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 ...
- 15
0
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0
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112
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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 ...
- 1,243