We present the multi-factor quadratic reduced form model for pricing of credit risky securities. We use quadratic Gaussian processes to model the short term interest rate and the intensity of default showing that we get tractable formulas for the price of credit default swaps and credit default swaptions.

Abstract The jump threshold framework for credit risk modeling developed by Garreau and Kercheval (2016) enjoys the advantages of both structural and reduced form models. In their paper, the focus is on multi-dimensional default dependence, under the assumptions that stock prices follow an exponential Lévy process (i.i.d. log returns) and that interest rates and stock volatility are constant. E...

In this paper we compare market prices of credit default swaps with model prices. We show that a simple reduced form model outperforms directly comparing bonds’ credit spreads to default swap premiums. We find that the model yields unbiased premium estimates for default swaps on investment grade issuers, but only if we use swap or repo rates as proxy for default-free interest rates. This indica...

Evidence from many countries in recent years suggests that collateral values and recovery rates on corporate defaults can be volatile and, moreover, that they tend to go down just when the number of defaults goes up in economic downturns. This link between recovery rates and default rates has traditionally been neglected by credit risk models, as most of them focused on default risk and adopted...

INTRODUCTION Studies have shown an association between smoking and tuberculosis (TB) infection, disease and TB-related mortality. We thus documented the impact of smoking and others factors on TB treatment default. METHODS A cohort of 1039 new TB cases matched on smoking status was followed between 2004 and 2009 in eight Moroccan regions. Treatment default was defined according to internation...

Evidence from many countries in recent years suggests that collateral values and recovery rates on corporate defaults can be volatile and, moreover, that they tend to go down just when the number of defaults goes up in economic downturns. This link between recovery rates and default rates has traditionally been neglected by credit risk models, as most of them focused on default risk and adopted...

A local volatility model is enhanced by the possibility of a single jump to default. The jump has a hazard rate that is the product of the stock price raised to a prespecified negative power and a deterministic function of time. The empirical work uses a power of −1.5. It is shown how one may simultaneously recover from the prices of credit default swap contracts and equity option prices both t...