Regime switching dynamics in credit default swaps: Evidence from smooth transition autoregressive model

2012 ◽  
Vol 391 (4) ◽  
pp. 1497-1508 ◽  
Author(s):  
Alex YiHou Huang ◽  
Wen-Cheng Hu
Keyword(s):  
Regime Switching ◽  
Autoregressive Model ◽  
Credit Default Swaps ◽  
Smooth Transition ◽  
Switching Dynamics ◽  
Credit Default ◽  
Smooth Transition Autoregressive

scholarly journals Analytically Pricing Credit Default Swaps Under a Regime-Switching Model

2019 ◽  
Vol 18 (03) ◽  
pp. 1950021
Author(s):  
Wenting Chen ◽  
Xin-Jiang He ◽  
Xinzi Qiu
Keyword(s):  
Regime Switching ◽  
Numerical Experiments ◽  
Credit Default Swap ◽  
Credit Default Swaps ◽  
Default Probability ◽  
Regime Switching Model ◽  
Switching Model ◽  
Credit Default ◽  
Default Swap ◽  
Closed Form Formula

In this paper, we consider the valuation of a CDS (credit default swap) contract when the reference asset is assumed to follow a regime-switching model with the volatility allowed to jump among different states. Our motivation originates from empirical evidence demonstrating the existence of regime-switching in real markets. The default probability is analytically derived first, based on which a closed-form formula for the CDS price is obtained so that it can be easily implemented for practical purposes. Finally, numerical experiments are carried out to show quantitatively some properties of the CDS price under the regime-switching model.

MODELING ASYMMETRIES AND MOVING EQUILIBRIA IN UNEMPLOYMENT RATES

2002 ◽  
Vol 6 (2) ◽  
pp. 202-241 ◽  
Author(s):  
Joakim Skalin ◽  
Timo Teräsvirta
Keyword(s):  
Time Series ◽  
Autoregressive Model ◽  
Oecd Countries ◽  
Smooth Transition ◽  
Stable Model ◽  
Unemployment Rates ◽  
Asymmetric Behavior ◽  
In Series ◽  
Globally Stable ◽  
Smooth Transition Autoregressive

The paper discusses a simple univariate nonlinear parametric time-series model for unemployment rates, focusing on the asymmetry observed in many OECD unemployment series. The model is based on a standard logistic smooth transition autoregressive model for the first difference of unemployment, but it also includes a lagged level term. This model allows for asymmetric behavior by permitting “local” nonstationarity in a globally stable model. Linearity tests are performed for a number of quarterly, seasonally unadjusted, unemployment series from OECD countries, and linearity is rejected for a number of them. For a number of series, nonlinearity found by testing can be modeled satisfactorily by use of our smooth transition autoregressive model. The properties of the estimated models, including persistence of the shocks according to them, are illustrated in various ways and discussed. Possible existence of moving equilibria in series not showing asymmetry is investigated and modeled with another smooth transition autoregressive model.

scholarly journals The Cyclical Behaviour of the Small-Cap Premium: A Regime-Switching Approach

2020 ◽  
Vol 2 (1) ◽  
pp. 1
Author(s):  
Lorne N. Switzer ◽  
Alan Picard
Keyword(s):  
Regime Switching ◽  
Factor Model ◽  
Smooth Transition ◽  
Star Model ◽  
Financial Variables ◽  
The Us ◽  
Model Star ◽  
Cyclical Behaviour ◽  
The Business Cycle ◽  
Smooth Transition Autoregressive

While the average annual small-cap premia for the US and Canada are substantial over long horizons, there is considerable time variation of this premium within and across these countries. For the US, during expansions, the average annualized premium is a sizable 5.44%, while during recessions, there is a small-cap discount of 6.23%. The differentials are less pronounced in Canada. This paper investigates the hypothesis that the variation of the small-cap premium is related to macroeconomic and financial variables that can be captured by a nonlinear time series econometric model, i.e., the smooth transition autoregressive model (STAR model), with different factor sets across regimes between and countries. The regimes reflect expansionary vs. contractionary phases of the business cycle. For the Canadian small-cap premium, an augmented factor model that includes US factors dominates a purely domestic factor model, which is consistent with integrated markets.

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