We present an intensity-based model with counterparty risk. We assume the default intensity of firm depends on the stochastic interest rate driven by the jump-diffusion process and the default states of counterparty firms. Furthermore, we make use of the techniques in Park 2008 to compute the conditional distribution of default times and derive the explicit prices of bond and CDS. These are ext...

The medial prefrontal cortex exhibits a higher resting metabolic rate than many other brain regions. This physiological default mode might support a psychological default state of chronic self-evaluation that helps people consider their strengths and weaknesses when planning future actions. However, a recent imaging study that relates medial prefrontal cortex activity to self-evaluation raises ...

The literature on credit risk consists of different approaches in modeling the behavior of defaultable bonds. The structural approach is based on the evolution of the firm value to determine default and recovery. In contrast, the more recently developed intensity-based models specify the default time exogenously. In this approach the defaultable yield curve results from the risk-free yield curv...

File reference: blackdef.tex We develop the theory of hedging a European call option in the Black model augmented by the possibility of default in the underlying asset. We model default as a drop to zero and we assume that the credit default swap rate is constant. In this setting, we show that the call's payoff can be perfect replicated by dynamic trading in the underlying futures and in credit...

Recent sovereign defaults in emerging countries are accompanied by interest rate spikes and deep recessions. This paper develops a small open economy model to study default risk and its interaction with output, consumption, and foreign debt. Default probabilities and interest rates depend on incentives for repayment. Default occurs in equilibrium because asset markets are incomplete. The model ...

Under certain monetary-fiscal regimes the risk of default and thus the emergence of sovereign risk premiums are inevitable. This paper argues that in this context even small differences in the specification of monetary policy can have enormous effects on the equilibrium behavior of default rates and risk premiums. Under some monetary policy rules studied, the conditional expectation of default ...

We modify the model of Itkin, Shcherbakov and Veygman (ISV), proposed for pricing Quanto CDS risky bonds, in several ways. First, recovery rate could significantly vary right before or at default, therefore, here we treat it as stochastic. Second, assume domestic interest to be deterministic, because, shown by ISV, its volatility does not contribute much spread. Finally, solve corresponding sys...

Survival analysis can be applied to build models for time of default on debt. In this paper we report an application of survival analysis to model default on a large data set of credit card accounts. We show that survival analysis is competitive for prediction of default in comparison with logistic regression. We explore the hypothesis that probability of default is affected by general conditio...

RATIONALE High rates of recurrent tuberculosis after successful treatment have been reported from different high burden settings in Sub-Saharan Africa. However, little is known about the rate of smear-positive tuberculosis after treatment default. In particular, it is not known whether or not treatment defaulters continue to be or become again smear-positive and thus pose a potential for transm...

The quality spread differential is defined to be the difference between the default premiums demanded for fixed rate and floating rate risky debts. The risky debt model based on Merton’s firm value approach is used to examine the behaviors of the quality spread differential of fixed rate and floating rate debts. We extend earlier result by adopting Geometric Brownian diffusion process with jump...