5
votes
KMV-Merton Probabilties of Default vs Moody's EDF
I understand that Moody's uses an empirical distribution while KMV
uses a normal distribution in order to calculate these probabilities
KMV doesn't use a normal distribution to map distance to ...
- 1,549
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. ...
- 4,968
5
votes
Accepted
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. ...
- 6,174
5
votes
Accepted
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 ...
- 11.7k
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 ...
- 5,652
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 ...
- 11.7k
3
votes
Accepted
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 ...
- 5,622
3
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 ...
- 5,652
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 ...
- 2,180
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 ...
- 4,329
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 ...
- 135
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 ...
- 11.7k
2
votes
Accepted
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 ...
- 8,436
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 $S_n$ ...
- 188
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 ...
- 7,865
2
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 ...
- 5,001
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 ...
- 11.7k
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\...
- 4,968
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 ...
- 1,396
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 ...
- 8,436
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 ...
- 21k
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
- 464
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 ...
- 4,329
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 ...
- 1,396
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