Reduced-Form Models With Regime Switching: An Empirical Analysis for Corporate Bonds

2007 ◽  
Author(s):  
Hoi Ying Wong ◽  
Tsz Lim Wong
Keyword(s):  
Empirical Analysis ◽  
Regime Switching ◽  
Corporate Bonds ◽  
Reduced Form

Reduced-Form Valuation of Callable Corporate Bonds: Theory and Evidence

2008 ◽  
Author(s):  
Robert A. Jarrow ◽  
Haitao Li ◽  
Sheen Liu ◽  
Chunchi Wu
Keyword(s):  
Corporate Bonds ◽  
Reduced Form

Reduced-form valuation of callable corporate bonds: Theory and evidence

2010 ◽  
Vol 95 (2) ◽  
pp. 227-248 ◽  
Author(s):  
Robert Jarrow ◽  
Haitao Li ◽  
Sheen Liu ◽  
Chunchi Wu
Keyword(s):  
Corporate Bonds ◽  
Reduced Form

Empirical analysis of stock indices under a regime-switching model with dependent jump size risks

2016 ◽  
Vol 54 ◽  
pp. 260-275 ◽  
Author(s):  
Yuan-Lin Hsu ◽  
Shih-Kuei Lin ◽  
Ming-Chin Hung ◽  
Tzu-Hui Huang
Keyword(s):  
Empirical Analysis ◽  
Regime Switching ◽  
Regime Switching Model ◽  
Switching Model ◽  
Jump Size ◽  
Stock Indices

scholarly journals Pricing Options with Credit Risk in Markovian Regime-Switching Markets

2013 ◽  
Vol 2013 ◽  
pp. 1-9 ◽  
Author(s):  
Jinzhi Li ◽  
Shixia Ma
Keyword(s):  
Markov Chain ◽  
Credit Risk ◽  
Regime Switching ◽  
Stock Price ◽  
Arrival Rate ◽  
Reduced Form ◽  
European Option ◽  
Pricing Options ◽  
Markov Modulated ◽  
The Interest Rate

This paper investigates the valuation of European option with credit risk in a reduced form model when the stock price is driven by the so-called Markov-modulated jump-diffusion process, in which the arrival rate of rare events and the volatility rate of stock are controlled by a continuous-time Markov chain. We also assume that the interest rate and the default intensity follow the Vasicek models whose parameters are governed by the same Markov chain. We study the pricing of European option and present numerical illustrations.

PRICING CREDIT DERIVATIVES IN A MARKOV-MODULATED REDUCED-FORM MODEL

2013 ◽  
Vol 16 (04) ◽  
pp. 1350018 ◽  
Author(s):  
TAMAL BANERJEE ◽  
MRINAL K. GHOSH ◽  
SRIKANTH K. IYER
Keyword(s):  
Markov Chain ◽  
Regime Switching ◽  
Credit Rating ◽  
Credit Derivatives ◽  
Reduced Form ◽  
New Family ◽  
Default Intensity ◽  
High Volatility ◽  
Markov Modulated ◽  
The Impact

Numerous incidents in the financial world have exposed the need for the design and analysis of models for correlated default timings. Some models have been studied in this regard which can capture the feedback in case of a major credit event. We extend the research in the same direction by proposing a new family of models having the feedback phenomena and capturing the effects of regime switching economy on the market. The regime switching economy is modeled by a continuous time Markov chain. The Markov chain may also be interpreted to represent the credit rating of the firm whose bond we seek to price. We model the default intensity in a pool of firms using the Markov chain and a risk factor process. We price some single-name and multi-name credit derivatives in terms of certain transforms of the default and loss processes. These transforms can be calculated explicitly in case the default intensity is modeled as a linear function of a conditionally affine jump diffusion process. In such a case, under suitable technical conditions, the price of credit derivatives are obtained as solutions to a system of ODEs with weak coupling, subject to appropriate terminal conditions. Solving the system of ODEs numerically, we analyze the credit derivative spreads and compare their behavior with the nonswitching counterparts. We show that our model can easily incorporate the effects of business cycle. We demonstrate the impact on spreads of the inclusion of rare states that attempt to capture a tight liquidity situation. These states are characterized by low floating interest rate, high default intensity rate, and high volatility. We also model the effects of firm restructuring on the credit spread, in case of a default.

scholarly journals Empirical Pricing of Chinese Defaultable Corporate Bonds Based on the Incomplete Information Model

2014 ◽  
Vol 2014 ◽  
pp. 1-5 ◽  
Author(s):  
Li Ping ◽  
Wang Xiaoxu
Keyword(s):  
Incomplete Information ◽  
Default Risk ◽  
Corporate Bonds ◽  
Information Model ◽  
Corporate Bond ◽  
Reduced Form ◽  
First Year ◽  
The Real ◽  
Form Model

The default of Suntech Power made the year 2013 in China “the first year of default” of bond markets. People are also clearly aware of the default risk of corporate bonds and find that fair pricing for defaultable corporate bonds is very important. In this paper we first give the pricing model based on incomplete information, then empirically price the Chinese corporate bond “11 super JGBS” from Merton’s model, reduced-form model, and incomplete information model, respectively, and then compare the obtained prices with the real prices. Results show that all the three models can reflect the trend of bond prices, but the incomplete information model fits the real prices best. In addition, the default probability obtained from the incomplete information model can discriminate the credit quality of listed companies.

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