This paper examines equilibrium determination under different monetary policy regimes when the government might default on its debt. We apply a cash-inadvance model where the government does not have access to non-distortionary taxation and does not account for initial outstanding debt when it sets the income tax rate. Solvency is then not guaranteed and sovereign default can affect the return ...

Recent advances in the theory of credit risk allow the use of standard term structure machinery for default risk modeling and estimation. The empirical literature in this area often interprets the drift adjustments of the default intensity’s diffusion state variables as the only default risk premium. We show that this interpretation implies a restriction on the form of possible default risk pre...

In credit risk modelling, method of moment approaches are popular to estimate latent asset return correlations within and between rating buckets. However, autocorrelation that is often present in default rate time series leads to systematically too low estimations. Adjusting for autocorrelation and shortness of time series, we propose a new estimator. The adjustment is based on convergence and ...

*Correspondence: [email protected] 1RBC Financial Group, 222 Bay St, M5K 1G8, Toronto, ON, Canada 2Department of Mathematics and Statistics, York University, 4700 Keele Street, M3J 1P3 Toronto, ON , Canada Full list of author information is available at the end of the article Abstract Credit value adjustment (CVA) is an adjustment to an existing trading price based on the counterparty-ri...

The pricing problem of credit derivatives has received much attention in the last decade. An important unresolved problem, however, is the pricing of credit derivatives under the general environment in which the interest rate process and the hazard rate process are stochastic. This article addresses the pricing problems of credit derivatives (defaultable bonds, default swaps, and default option...

Managing risk at the aggregate level is crucial for banks and financial institutions as required by the Basel III framework. In this paper, we introduce discrete time Bayesian state space models with Poisson measurements to model aggregate mortgage default rate. We discuss parameter updating, filtering, smoothing, forecasting and estimation using Markov chain Monte Carlo methods. In addition, w...

Nowadays, one of the most important topics in risk management of banks, financial, and credit institutions is credit risk management. In this research, the researchers used survival analytic methods for credit risk modeling in terms of the conditional distribution function of default time. As a practical task, the authors considered the reward credit portfolio of Tose'e Ta'avon Bank of Guilan P...

Researchers are increasingly using internet instruments such as email and online surveys as data-collection methods. However, web survey response rates are fairly low, which threatens the efficiency of weh surveys. To use weh surveys to gather data effectively, it is thus critical to improve the response rate of participants without compromising the low-cost advantage of this approach. The goal...

Default risk is the uncertainty surrounding a firm's ability to service its debts and obligations. Prior to default, there is no way to discriminate unambiguously between firms that will default and those that won't. At best we can only make probabilistic assessments of the likelihood of default. As a result, firms generally pay a spread over the default-free rate of interest that is proportion...

This paper studies a dynamic network economy where risk averse traders trade multi-laterally over the counter but cannot commit to fulfill their short positions. We show that, although the level of trade is below the first-best, bilateral clearing with collateral can provide an allocation superior to those without collateral. However, with use of collateral, the optimal bilateral clearing contr...