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5 votes
Accepted

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

I'll assume $$ J_t = \sum_{i=1}^{N_t} Z_i$$ be a compound Poisson process, with $(T_n)_{n\geq 1}$ being the jump times for Poisson process $(N_t)_{t\geq 0}$ and $(Z_i)_{i\geq 1}$ sequence of i.i.d. ...
ir7's user avatar
  • 5,043
5 votes
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Why would a default bond still being traded 1 year after the maturity date

The defaulted bond is a claim on the accelerated repayment of the remaining principal. The maturity date is a non-event for a defaulted bond. Its maturity date and the coupon rate are only useful for ...
Dimitri Vulis's user avatar
5 votes
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Annualized actual probability

Yes your formula seems correct under the simplifying assumptions as you can easily verify: Assume annual default rate is d, and the portfolio size is N. In the first year, we will have Nd defaults. ...
Magic is in the chain's user avatar
4 votes

Accrual in Default Derivation of Credit CDS Curve

The accrual on default is like the accrued interest on a bond. A credit default swap can be looked as a synthetic bond. As such, with each passing day, interest is earned to the seller of protection ...
AlRacoon's user avatar
  • 6,632
4 votes

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

The owner of the bond at the time of resolution of the default/bankruptcy is entitled to the recovery value. The bankruptcy proceedings may go well past the scheduled maturity of the debt obligations ...
AlRacoon's user avatar
  • 6,632
4 votes

Expected currency depreciation given sovereign default

I have actually looked into this a lot and I don't have a full answer. You can (sort of) see what the market participants think by looking at the consensus "quanto factors" published monthly by IHS ...
Dimitri Vulis's user avatar
3 votes

Expected currency depreciation given sovereign default

Similar to above, I’ve wargamed this one in the past and come to the the simple conclusion that the currency and local equity return are informative about the probability of default. Defaults are ...
demully's user avatar
  • 5,071
3 votes
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Accrual in Default Derivation of Credit CDS Curve

The formula for the accrual on default $$ S_n \sum_{i=1}^n \frac{\Delta_i}{2}(Ps(i-1)-Ps(i))DF_i $$ is just an approximation that says conditional on default occurring within period $i$ (probability ...
Antoine Conze's user avatar
2 votes

cva for a collateralised swap

Collateral imperfections: the CVA cover the expected exposure in the event that the counterparty defaults. When the trade is collateralized and subject to variation margin. This exposure will come ...
byouness's user avatar
  • 2,220
2 votes

Probability of default

Yes, you can. Also, do not use Altman's Z. The extreme scores are predictive, but a load of empirical research shows the intermediate values are not predictive. The best solution is a Bayesian ...
Dave Harris's user avatar
  • 4,299
2 votes

Probability of default

Merton model will be a bit more quantitiative. Z-Score is an option, as is Ohlson. In the end you are going to want some non-defaulted->defaulted transition mapping based on factors you identify as ...
jason m's user avatar
  • 135
2 votes

Accrual in Default Derivation of Credit CDS Curve

Simply speaking, as mentioned by Antoine, the accrual arises because default may happen between two payment dates and the accrued payment should be paid. $\Delta_i$ is the year fraction. Since $S_n$ ...
L. Francis Cong's user avatar
2 votes

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

A CDS would not be a good instrument to hedge this kind of credit risk for the following reasons: 1 CDS is traded by two counterparites that have an ISDA agreement. Most participants in this space ...
Dimitri Vulis's user avatar
2 votes
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Are Credit Default Swaps used by B2B Service providers or Vendors?

Maybe some do but I believe it’s rare because it’s not practical: CDS are traded for a limited amount of companies and CDS might not protect against late or non payment. What is more commonly done is ...
Bob Jansen's user avatar
  • 8,562
2 votes

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

As a complement to @ir7’s comprehensive derivation, in the case of Burgard and Kjaer’s the jump process $J_t$ models the default of the issuer. You specialize the process by setting $Z_1=-1$, while ...
Daneel Olivaw's user avatar
2 votes
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Determination of default time based on some model

There are many bugs in this code Looks like it is trying to draw a default time using a lognormal stochastic intensity model, $dh/h = Vol\times dW$, where $dW$ is drawn such that it is correlated with ...
achirikhin's user avatar
2 votes

US Market CDS Data during the Corona Pandemic for Bachelor Thesis

If I understand correctly, you don't have access to IHS Markit historical consensus CDS spreads, but you do have access to CMAN (CMA North America) historical CDS spreads on Bloomberg terminal. While ...
Dimitri Vulis's user avatar
2 votes
Accepted

Joint probability of default

(I didn't quite understand where exactly you are going with your questions, but I inserted a few statements below that might be useful.) Jorion's table shows: $$ \begin{bmatrix} P(A\cap B) & P(A\...
ir7's user avatar
  • 5,043
1 vote

Bayesian analysis in R for low default portfolios

If I understand correctly, you're looking for an implementation of Monte Carlo simulations in this paper? If you can't find anything on CRAN or elsewhere on the internet, I think your best bets, in ...
Bob Jansen's user avatar
  • 8,562
1 vote

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

Assuming "asset" means a credit-risky bond, and "protection" is a standard credit default swap on the same notional. Ignoring the coupons and interest payments, there are 4 ...
Dimitri Vulis's user avatar
1 vote
Accepted

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

Let us denote with $r_f$ the yield of the 10 U.S.Treasury strip and $r_{A}$ the yield of the risky bond issued by XYZ Inc. We denote with $p$ the cumulative default probability, with $P$ the bond face ...
alexbougias's user avatar
  • 1,426
1 vote

Simplifying an expectation function of default time and rates

For an in-homogeneous Poisson process, the intensity process $\lambda_t$ is assumed to be deterministic. More generally, we can define $\tau$ to be the first jump time of a Cox process, or a ...
Gordon's user avatar
  • 21.2k
1 vote

Probability of default

Take a look at the Altman Z Score, sounds like it is what you are looking for - https://en.wikipedia.org/wiki/Altman_Z-score
Bikenfly's user avatar
  • 454
1 vote

Probability default calculation

No, you cannot. If you had a pre-existing model that had been validated and used these variables, then yes you could, but you cannot calculate a probability from one data point and no other source of ...
Dave Harris's user avatar
  • 4,299
1 vote

is there a mapping from Altman Z-score for private companies to bond ratings or probability of default?

Note that Altman Z-Scoring model is calibrated on a sample many years ago. Therefore, a discrimination with these specific values for the coefficients is quite arbitrary. In that situation I think ...
alexbougias's user avatar
  • 1,426

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