Download or read book Bond Pricing with Default Risk written by Jason C. Hsu and published by . This book was released on 2004 with total page 57 pages. Available in PDF, EPUB and Kindle. Book excerpt: We price corporate debt from a structural model of firm default. We assume that the capital market brings about efficient firm default when the continuation value of the firm falls below the value it would have after bankruptcy restructuring. This characterization of default makes the model more tractable and parsimonious than the existing structural models. The model can be applied in conjunction with a broad range of default-free interest rate models to price corporate bonds. Closed-form corporate bond prices are derived for various parametric examples. The term structures of yield spreads and durations predicted by our model are consistent with the empirical literature. We illustrate the empirical performance of the model by pricing selected corporate bonds with varied credit ratings.
Download or read book Default Risk and the Effective Duration of Bonds written by David F. Babbel and published by . This book was released on 1995 with total page 22 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Structural Models of Corporate Bond Pricing written by Ricardo Alexandre Martins Gomes Pereira and published by . This book was released on 2008 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book The Default Premium and Corporate Bond Experience written by Jerome S. Fons and published by . This book was released on 1986 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Banks Government Bonds and Default written by Nicola Gennaioli and published by International Monetary Fund. This book was released on 2014-07-08 with total page 53 pages. Available in PDF, EPUB and Kindle. Book excerpt: We analyze holdings of public bonds by over 20,000 banks in 191 countries, and the role of these bonds in 20 sovereign defaults over 1998-2012. Banks hold many public bonds (on average 9% of their assets), particularly in less financially-developed countries. During sovereign defaults, banks increase their exposure to public bonds, especially large banks and when expected bond returns are high. At the bank level, bondholdings correlate negatively with subsequent lending during sovereign defaults. This correlation is mostly due to bonds acquired in pre-default years. These findings shed light on alternative theories of the sovereign default-banking crisis nexus.
Download or read book Sovereign Default Risk Valuation written by Jochen Andritzky and published by Springer Science & Business Media. This book was released on 2006-11-23 with total page 261 pages. Available in PDF, EPUB and Kindle. Book excerpt: Past cycles of sovereign lending and default suggest that debt crises will recur at some point. This book shows why investors should reckon with similar credit events in the future. Surveying the sovereign bond market, the author provides investors with a useful toolkit for analyzing sovereign bonds and foreseeing trends in the international financial architecture. The result should be a better understanding of debt crises and more deliberate investment decisions.
Download or read book Sovereign Bond Prices Haircuts and Maturity written by Mr.Tamon Asonuma and published by International Monetary Fund. This book was released on 2017-05-22 with total page 37 pages. Available in PDF, EPUB and Kindle. Book excerpt: Rejecting a common assumption in the sovereign debt literature, we document that creditor losses (“haircuts”) during sovereign restructuring episodes are asymmetric across debt instruments. We code a comprehensive dataset on instrument-specific haircuts for 28 debt restructurings with private creditors in 1999–2015 and find that haircuts on shorter-term debt are larger than those on debt of longer maturity. In a standard asset pricing model, we show that increasing short-run default risk in the run-up to a restructuring episode can explain the stylized fact. The data confirms the predicted relation between perceived default risk, bond prices, and haircuts by maturity.
Download or read book Bond Prices Yield Spreads and Optimal Capital Strucutre with Default Risk written by Hayne E. Leland and published by . This book was released on 1994 with total page 64 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book The Valuation of Default Risk in Corporate Bonds and Interest Rate Swaps written by Soren S. Nielsen and published by . This book was released on 1998 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper implements a model for the valuation of the default risk implicit in the prices of corporate bonds and interest rate swaps. The analytical approach considers the two essential ingredients in the valuation of corporate bonds: interest rate uncertainty and default risk. The former is modeled as a diffusion process. The latter is modeled as a spread following a diffusion process, with the magnitude of this spread impacting on the probability of a Poisson process governing the arrival of the default event. We apply two variants of this model to the valuation of fixed-for-floating swaps. In the first, the swap is default-free, and the spread represents the appropriate discounted expected value of the instantaneous TED spread; in the second, we allow the swap to incorporate default risk. We test our models using the entire term structure of corporate bond prices for different ratings and industry categories, as well as the term structure of fixed-for-floating swaps.
Download or read book Default Risk in Bond and Credit Derivatives Markets written by Christoph Benkert and published by Springer Science & Business Media. This book was released on 2012-08-27 with total page 143 pages. Available in PDF, EPUB and Kindle. Book excerpt: Due to the scarcity of reliable data, the existing literature on default risk still displays an imbalance between theoretical and empirical contributions. Consequently, the focus of this book is on empirical work. Within an intensity based modelling framework a broad range of promising specifications is tested using corporate bond data. The book provides one of the most comprehensive empirical studies in the field, from Kalman filtration of affine term structure models to the use of Efficient Method of Moments estimation of dynamic term structure models in a default risky context. Filling another gap in empirical research, the book devotes special attention to the identification factors that can explain credit default swap premia.
Download or read book HIGH YIELD BONDS written by Mark Shenkman and published by McGraw Hill Professional. This book was released on 1999 with total page 614 pages. Available in PDF, EPUB and Kindle. Book excerpt: HIGH-YIELD BONDS provides state-of-the-art research, strategies, and toolsÑalongside the expert analysis of respected authorities including Edward Altman of New York UniversityÕs Salomon Center, Lea Carty of MoodyÕs Investor Service, Sam DeRosa-Farag of Donaldson, Lufkin & Jenrette, Martin Fridson of Merrill Lynch & Company, Stuart Gilson of Harvard University, Robert Kricheff of CS First Boston, and Frank Reilly of the University of Notre DameÑto help you truly understand todayÕs high-yield market. For added value and ease of reference, this high-level one-volume encyclopedia is divided into seven sections detailing virtually every aspect of high-yield bond investment. They include: Market structureÑThe role of investment banks in security innovation and market development, evolution of analytical methodologies, and recent leveraged loan market developments; Security risk analysisÑHistorical bond default rates, real interest rate and default rate relationships, and new simulation methodologies for modeling credit quality; Security valuationÑImpact of seniority and security on bond pricing and return, important trading factors, and a Monte Carlo simulation methodology for valuing bonds and options in the context of correlated interest rate and credit risk; Market valuation modelsÑEconometric studies which detail the importance of monetary influences, risk-free interest rates, default rates, mutual fund flows, and seasonal fluctuations; Portfolio managementÑHistorical perspective and comparison to alternative investments, analysis of indices available to investors, and specific portfolio selection and risk management strategies of professional fund managers; Distressed security investingÑHistorical risk and return information, plus an academic overview of the market and decision criteria for uncovering and investing in securities with higher-than-average risk-adjusted returns; Corporate finance considerationsÑEmerging firmsÕ strategic choice between external debt and equity financing, as well as the choice of issuing public versus private (Rule-144a) securities. HIGH-YIELD BONDS provides extensive coverage of bond valuation and the construction and management of high-yield portfolios. Advanced Monte Carlo simulation models for the valuation of bonds and options on bonds as well as risk assessments on portfolios of bonds under conditions of correlated interest rate and credit risk are demonstrated. In todayÕs explosive environment of multiple new issues and high risk versus return relationships, it is paramount that you get advice from analysts and experts who have been influential in shaping and defining the market. HIGH-YIELD BONDS will provide you with a valuable reference to this fascinating and constantly changing class of securities, helping you assemble a stable, diversified portfolio of fixed income investments that provides the greatest returns and the lowest risks.
Download or read book A Model for Pricing Stocks and Bonds with Default Risk written by Harry Mamaysky and published by . This book was released on 2002 with total page 54 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper develops a tractable, dynamic, no-arbitrage model for the pricing of bonds and stocks that are subject to default risk. The model produces the bond pricing equations of the Duffie and Singleton (1999) framework. It is then shown that a particular choice of dividend process, characterized by affine dividend yields, along with the Duffie and Singleton (1999) default specification, produces stock prices that are exponential affine in the model's state variables. Importantly, the model allows for quite general interdependence between the prices of risky debt and equity. This, along with the model's tractability, makes it a natural platform for empirical investigations into the pricing of a firm's capital structure.
Download or read book Pricing Bonds and Bond Options with Default Risk written by Emilio Barone and published by . This book was released on 2004 with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt: The pricing of bonds and bond options with default risk is analyzed in the general equilibrium model of Cox, Ingersoll, and Ross (Cir, 1985). This model is extended by means of an additional parameter in order to deal with financial and credit risk simultaneously. The estimation of such a parameter, which can be considered as the market equivalent of an agencies' bond rating, allows to extract from current quotes the market perceptions of firm's credit risk. The general pricing model for defaultable zero-coupon bond is derived in a simple discrete-time setting while a more rigorous treatment, in a continuous-time setting, is contained in the Appendix A. Defaultable bonds may be valued by discounting the promised terminal payoff at a default-risk-adjusted interest rate, i.e. the risk-free rate plus a default-risk premium, or by discounting the expected terminal payoff at a risk-free interest rate. The availability of an integrated model allows for the pricing of default-free options written on defaultable bonds and of vulnerable options written either on default-free bonds or defaultable bonds. Valuation is performed under different contractual provisions dealing with the event of default: their impact on options prices is investigated and several numerical examples are given. A comparison between our results and those given by Jarrow and Turnbull (1995) is also presented.
Download or read book Pricing Bonds and Bond Options Under Default Risk written by Emilio Barone and published by . This book was released on 1998 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The pricing of bonds and bond options with default risk is analyzed in the general equilibrium model of Cox, Ingersoll, and Ross (1985). This model is extended by means of an additional parameter in order to deal with financial and credit risk simultaneously. The estimation of such a parameter, which can be considered as the market equivalent of an agencies' bond rating, allows to extract from current quotes the market perceptions of firm's credit risk. The general pricing model for defaultable zero-coupon bond is first derived in a simple discrete-time setting and then in continuous-time. The availability of an integrated model allows for the pricing of default-free options written on defaultable bonds and of vulnerable options written either on default-free bonds or defaultable bonds. A comparison between our results and those given by Jarrow and Turnbull (1995) is also presented.
Download or read book Credit Risk written by Darrell Duffie and published by Princeton University Press. This book was released on 2012-01-12 with total page 415 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this book, two of America's leading economists provide the first integrated treatment of the conceptual, practical, and empirical foundations for credit risk pricing and risk measurement. Masterfully applying theory to practice, Darrell Duffie and Kenneth Singleton model credit risk for the purpose of measuring portfolio risk and pricing defaultable bonds, credit derivatives, and other securities exposed to credit risk. The methodological rigor, scope, and sophistication of their state-of-the-art account is unparalleled, and its singularly in-depth treatment of pricing and credit derivatives further illuminates a problem that has drawn much attention in an era when financial institutions the world over are revising their credit management strategies. Duffie and Singleton offer critical assessments of alternative approaches to credit-risk modeling, while highlighting the strengths and weaknesses of current practice. Their approach blends in-depth discussions of the conceptual foundations of modeling with extensive analyses of the empirical properties of such credit-related time series as default probabilities, recoveries, ratings transitions, and yield spreads. Both the "structura" and "reduced-form" approaches to pricing defaultable securities are presented, and their comparative fits to historical data are assessed. The authors also provide a comprehensive treatment of the pricing of credit derivatives, including credit swaps, collateralized debt obligations, credit guarantees, lines of credit, and spread options. Not least, they describe certain enhancements to current pricing and management practices that, they argue, will better position financial institutions for future changes in the financial markets. Credit Risk is an indispensable resource for risk managers, traders or regulators dealing with financial products with a significant credit risk component, as well as for academic researchers and students.
Download or read book Default Risk and the Effective Duration of Bonds written by David F. Babbel and published by . This book was released on 2016 with total page 22 pages. Available in PDF, EPUB and Kindle. Book excerpt: Estimates of how much credit risk shortens the effective duration of corporate bonds based on observable data and easily estimated bond pricing parameters.Basis risk is the risk attributable to uncertain movements in the spread between yields associated with a particular financial instrument or class of instruments, and a reference interest rate over time. There are seven types of basis risk: Yields on- Long-term versus short-term financial instruments.- Domestic currency versus foreign currencies.- Liquid versus illiquid investments.- Bonds with higher or lower sensitivity to changes in interest rate volatility.- Taxable versus tax-free instruments.- Spot versus futures contracts.- Default -f ree versus non - default - free securities.Basis risk makes it difficult for the fixed-income portfolio manager to measure the portfolio's exposure to interest rate risk, heightens the anxiety of traders and arbitrageurs who are hedging their investments, and compounds the financial institution's problem of matching assets and liabilities.Much attention has been paid to the first type of basis risk. In recent years, attention has turned toward understanding the relation between credit risk and duration. Babbel, Merrill, and Panning focus on that, emphasizing the importance of taking credit risk into account when computing measures of duration.The consensus of all work in this area is that credit risk shortens the effective duration of corporate bonds. The authors estimate how much durations shorten because of credit risk, basing their estimates on observable data and easily estimated bond pricing parameters.An earlier version of this paper - a product of the Financial Sector Development Department - was presented at the Second Biennial Conference on the Financial Dynamics of the Insurance Industry, New York University.
Download or read book Uncovering Country Risk in Emerging Market Bond Prices written by Erik Durbin and published by . This book was released on 1999 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt:
