Excerpt from book - This chapter offers a basic review of the valuation of equities and corporate liabilities, beginning with some standard issues regarding the capital structure of a firm. Then, we turn to models of the valuation of defaultable debt that are based on an assumed stochastic arrival intensity ... click here for more details.
Based upon the material developed in Chapter 3, this chapter introduces the models of correlated defaults and their corresponding method of calibration and simulation algorithms. CreditMetrics, doubly stochastic correlated default-intensity processes, copulas and intensity-based models of default with joint credit events are the most popular approaches and are discussed ... click here for more details.
Excerpt from book - This chapter applies arbitrage-free pricing techniques from Chapters 6 and 7 to derivative securities that are not always easily treated by the direct PDE approach of Chapter 5. A derivative security is one whose cash flows are contingent on the prices of other securities, or on ... click here for more details.
Credit risk, credit risk pricing models, empirical aspects of corporate and sovereign bond yields, historical properties of US corporate bond credit spreads, correlation between Treasury rates and spreads, alternative reference curves for spreads, reduced-form models, affine models, parametric reduced-form models, square-root diffusion models, jump-diffusion models, observable credit factors, estimating structural models, empirical implementation and analysis of structural models, parametric models of sovereign spreads
Excerpt from book - This chapter reviews security market equilibrium in a continuous-time setting and derives several implications for security prices and expected returns. These include Breedenís consumption-based capital asset pricing model (in both complete- and incomplete-market settings) as well as the Cox-Ingersoll-Ross model of the term structure.