2017/06/20 by Dianfa Chen, Jun Deng, Chen, Dianfa +5
Business, Management and Accounting · Economics, Econometrics and Finance · #Actuarial science #Business #Collateral #Collateralized debt obligation #Credit Risk and Financial Regulations #Credit default swap #Credit derivative #Credit risk #Credit valuation adjustment #Default #Econometrics #Economics #FOS: Economics and business #Finance #Financial Distress and Bankruptcy Prediction #Financial economics #Monetary Policy and Economic Impact #Risk Management (q-fin.RM) #Synthetic CDO #Tranche #iTraxx #q-fin.RM
paper · pdf · doi:10.48550/arxiv.1706.06285
published in arXiv (Cornell University) (Cornell University) · 46 pages
openalex publication_date 2017/06/20 · arxiv created 2018/08/30 · arxiv updated 2018/08/31 · openalex created_date 2021/02/01 · openalex updated_date 2026/07/28
We propose a novel credit default model that takes into account the impact of\nmacroeconomic information and contagion effect on the defaults of obligors. We\nuse a set-valued Markov chain to model the default process, which is the set of\nall defaulted obligors in the group. We obtain analytic characterizations for\nthe default process, and use them to derive pricing formulas in explicit forms\nfor synthetic collateralized debt obligations (CDOs). Furthermore, we use\nmarket data to calibrate the model and conduct numerical studies on the tranche\nspreads of CDOs. We find evidence to support that systematic default risk\ncoupled with default contagion could have the leading component of the total\ndefault risk.\n