The valuation of basket default swaps depends crucially on the joint default probability of the underlying assets in the basket. It is known that this probability can be modeled by means of a copula function which links the marginal default probabilities to a joint probability. The valuation bears risk due to the uncertainty of the copula, the relation of the assets to each other and the margin...

This paper generalizes Moody's correlated binomial default distribution for homogeneous (exchangeable) credit portfolio, which is introduced by Witt, to the case of inhomogeneous portfolios. As inhomogeneous portfolios, we consider two cases. In the first case, we treat a portfolio whose assets have uniform default correlation and non-uniform default probabilities. We obtain the default probabi...

Banks using either the Foundation or Advanced option of the Internal Ratings Based approach to credit risk under Basel II must estimate long-run annual average default probabilities for buckets of homogeneous assets. The one-factor model underlying the capital calculations in Basel II has implications for the distribution of average (across assets) default rates over time. One of these implicat...

Is object-based attention mandatory or under strategic control? In an adapted spatial cuing paradigm, participants focused initially on a central arrow cue that was part of a perceptual group (Experiment 1) or a uniformly connected object (Experiment 2), encompassing one of the potential target locations. The cue always pointed to an opposite, different-object location. By varying cue validity,...

An important feature of bond markets is the relationship between initial public offering prices and the probability of the issuer defaulting. First, this probability affects bond prices. Second, IPO prices determine the default probability. Though the market equilibrium has been shown to predict well for other assets, it is a priori unclear whether markets will yield competitive prices when suc...

The problem in default probability estimation for low-default portfolios is that there is little relevant historical data information. No amount of data processing can …x this problem. More information is required. Incorporating expert opinion formally is an attractive option.

Conventional wisdom posits that high interest rates stem capital flight. But if higher interest rates increase the probability of debt default, they might have anti-orthodox effects. This note develops a framework for evaluating conditions under which this might occur.  2000 Elsevier Science S.A. All rights reserved.

This paper considers the role of ownership form for the financial performance of German acute care hospitals and its development over time. We measure financial performance by a hospital-specific yearly probability of default (PD). Using a panel of hospital data, our models allow for state dependence in the PD as well as unobserved individual heterogeneity. We find that private ownership is mor...

This paper considers a hypothetical case in which bank wants to build routine climate stress test exercise on residential mortgage loans. The has regularly updated the probability of default (PD) and loss given (LGD) each loan under internal-rating-based (IRB) approach Basel II/III. Additionally, estimates stressed PD LGD associated with predetermined extreme weather event. Using simulation tec...