A robust test of Merton's structural model for credit risk

2003 ◽  
Vol 6 (1) ◽  
pp. 39-58 ◽  
Author(s):  
Robert Jarrow ◽  
Donald van Deventer ◽  
Xiaoming Wang
Keyword(s):  
Credit Risk ◽  
Structural Model ◽  
Robust Test

The Dynamics of Sovereign Credit Risk

2015 ◽  
Vol 50 (5) ◽  
pp. 963-985 ◽  
Author(s):  
Alexandre Jeanneret
Keyword(s):  
Credit Risk ◽  
Sovereign Debt ◽  
Structural Model ◽  
Likelihood Estimation ◽  
Market Uncertainty ◽  
Market Prices ◽  
Sovereign Credit ◽  
Sovereign Spreads ◽  
Sovereign Credit Risk ◽  
European Economies

AbstractThis article proposes a structural model for sovereign credit risk with endogenous sovereign debt and default policies. A maximum-likelihood estimation of the model with local stock market prices generates daily model-implied sovereign spreads. This approach explains two-thirds of the daily variation in observed sovereign spreads for emerging and European economies over the 2000–2011 period. Global factors help to further explain the time variation in sovereign credit risk. In particular, sovereign spreads in emerging markets vary with U.S. market uncertainty, whereas European spreads depend on Euro-zone bond factors.

EFFECT OF ASSET VALUE CORRELATION ON CREDIT-LINKED NOTE VALUES

2002 ◽  
Vol 05 (05) ◽  
pp. 455-478 ◽  
Author(s):  
C. H. HUI ◽  
C. F. LO
Keyword(s):  
Interest Rate ◽  
Credit Risk ◽  
Structural Model ◽  
Credit Spreads ◽  
Model Parameters ◽  
Risk Premiums ◽  
Closed Form Solutions ◽  
Asset Values ◽  
Dependent Model ◽  
Payoff Condition

This paper develops a simple model to study the credit risk premiums of credit-linked notes using the structural model. Closed-form solutions of credit risk premiums of the credit-linked notes derived from the model as functions of firm values and the short-term interest rate, with time-dependent model parameters governing the dynamics of the firm values and interest rate. The numerical results show that the credit spreads of a credit-linked note increase non-linearly with the decrease in the correlation between the asset values of the note issuer and the reference obligor when the final payoff condition depends on the asset values of the note issuer and the reference obligor. When the final payoff condition depends on the recovery rate of the note issuer upon default, the credit spreads could increase with the correlation. In addition, the term structures of model parameters and the correlations involving interest rate are clearly the important factors in determining the credit spreads of the notes.

A structural model for credit risk with switching processes and synchronous jumps

2014 ◽  
Vol 22 (11) ◽  
pp. 1040-1062 ◽  
Author(s):  
Donatien Hainaut ◽  
David B. Colwell
Keyword(s):  
Credit Risk ◽  
Structural Model

The valuation of stochastic insurance liabilities using a structural model approach

2015 ◽  
Vol 02 (01) ◽  
pp. 1550007
Author(s):  
Masayasu Kanno
Keyword(s):  
Stochastic Process ◽  
Credit Risk ◽  
Structural Model ◽  
Current Approach ◽  
Time Function ◽  
Default Option ◽  
Liability Structure ◽  
Model Approach

Liability drives insurers' businesses. This paper examines the structural model approach of credit risk for the valuation of insurance liabilities and insurers' equity, and considers a stochastic process for liability. Grosen and Jørgensen's (2002) study presents the current approach taken by insurers; however, the model's structure is very simple, and its liability structure in particular has a deterministic time function. In contrast, we analyze a model that analytically evaluates an insurer's liability with the stochastic process. Furthermore, we analyze the model's default option originally presented by Myers and Read (2001).

scholarly journals Does crisis affect credit risk in developing countries? The Case of the Jordanian Market

2019 ◽  
Vol 1 (1) ◽  
pp. 24-37
Author(s):  
Kouzez Marc ◽  
Lecointre-Erickson Danielle
Keyword(s):  
Credit Risk ◽  
Open Economy ◽  
Structural Model ◽  
Z Score ◽  
International Crisis ◽  
Jel Codes ◽  
Linear Discriminant ◽  
Score Model ◽  
A Company

At the core of the recent global financial and economic crisis marked by its magnitude, credit risk turned out to be a powerful catalyst. The objective of this paper is mainly to follow up on the evolution of credit risk on the Jordanian market during the recent economic and financial international crisis. Based on the linear discriminant Z-Score model and KMV structural model, we recognize the increase in credit risk during the crisis period. On the whole, the confrontation between models highlights the robust correlation between the accounting results of a company and its market value and therefore indicates the need to consider the macroeconomic context in an open economy for the evaluation of the risk of credit.   JEL codes: E551, G3, C1

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