Recently, analyses of fMRI data have revealed functionally connected and interacting spontaneous active regions in the brain, which are referred as ”Default Mode Brain Network”. The fluctuations on BOLD signals of the default mode brain network have shown spatiotemporally correlated synchronization at a rate lower than 0.1 Hz in contrast to signals under concrete tasks like high frequency rhyth...

Using sovereign CDS spreads and currency option data for Mexico and Brazil, we document that CDS spreads covary with both the currency option implied volatility and the slope of the implied volatility curve in moneyness. We propose a joint valuation framework, in which currency return variance and sovereign default intensity follow a bivariate diffusion with contemporaneous correlation. Estimat...

We present an intensity-based model of correlated defaults with application to the valuation of defaultable securities. The model assumes that the conditional hazard rate of default is driven by external common factors as well as other defaults in the system. A proposed recursive procedure can be used to generate default times with a broad class of correlation structures. We compare this approa...

This article combines an orientation to credit risk modeling with an introduction to affine Markov processes, which are particularly useful for financial modeling. We emphasize corporate credit risk and the pricing of credit derivatives. Applications of affine processes that are mentioned include survival analysis, dynamic term-structure models, and option pricing with stochastic volatility and...

2 Abstract Correlated defaults have been an important area of research in credit risk analysis with the advent of a basket of credit derivatives. Even the simple credit derivatives should be considered a basket of two default risks since the bankruptcy risk of the derivative issuer is also a factor. Considering jumps in the asset value helps to model the surprise risk of default in a group of f...

This paper documents an increase in the correlation of credit default swap (CDS) spread changes during the credit crisis and investigates the source of that increase. One possible explanation is that correlations increased because fundamental values became more correlated during the crisis. Alternatively, correlations may have increased because of contagion, rather than because of an increase i...

We establish Markovian models in the Heath, Jarrow and Morton paradigm that permit an exponential affine representation of riskless and risky bond prices while offering significant flexibility in the choice of volatility structures. Estimating models in our family is typically no more difficult than estimating term structure models in the workhorse affine family. In addition to diffusive and ju...

The study measures farm credit risk by using farm records collected by Farm Business Farm Management (FBFM) during the period 1995-2004. The study addresses the following questions: 1) whether farm " s financial position is fully described by the structure model, 2) what are the determinants of farm capital structure under the structure model, 3) how to estimate and test farm asset correlation,...

Motivated by recent financial crises in East Asia and the U.S. where the downfall of a small number of firms had an economy-wide impact, this paper generalizes existing reduced-form models to include default intensities dependent on the default of a counterparty. In this model, firms have correlated defaults due not only to an exposure to common risk factors, but also to firm-specific risks tha...

This thesis proposes a novel credit risk model which deals with incomplete information on the firm’s asset value. Such incompleteness is due to reporting bias deliberately introduced by insider managers and executives of the firm and unobserved by outsiders. The pricing of corporate securities and the evaluation of default measures in our credit risk framework requires the solution of a computa...