Default, Liquidity and Crises: An Econometric Framework
Details
Serval ID
serval:BIB_09EE2D614455
Type
Article: article from journal or magazin.
Collection
Publications
Institution
Title
Default, Liquidity and Crises: An Econometric Framework
Journal
Journal of Financial Econometrics
ISSN
1479-8417 (Online)
1479-8409 (Print)
1479-8409 (Print)
Publication state
Published
Issued date
2013
Peer-reviewed
Oui
Volume
11
Number
2
Pages
221-262
Language
english
Notes
Monfort_Renne_2013
Abstract
This article presents a general discrete-time affine framework aimed at jointly modeling yield curves associated with different debtors. The underlying fixed-income securities may differ in terms of credit quality and/or in terms of liquidity. The risk factors follow conditionally Gaussian processes, with drifts and covariance matrices that are subject to regime shifts described by a Markov chain with (historical) non-homogenous transition probabilities. Bond prices are given by quasi-explicit formulas. The tractability of the framework is illustrated by the estimation of a term-structure model of the spreads between U.S. BBB-rated corporate bonds and Treasuries. Alternative applications are proposed, including a sector-contagion model as well as the explicit modeling of credit-rating transitions.
Keywords
Credit risk, Liquidity risk, Term structure, Affine model, Regime switching, Car process
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Create date
23/09/2015 15:46
Last modification date
20/08/2019 12:32