The economic role of jumps and recovery rates in the market for corporate default risk

Journal of Financial and Quantitative Analysis

Volumn 45, Issue 6, 2010, Pages 1517-1547

  Schneider, Paul ^a   Sögner, Leopold ^b   Veža, Tanja ^c  

^a UNIVERSITY OF WARWICK   (United Kingdom)

^b INSTITUTE FOR ADVANCED STUDIES   (Austria)

^c VIENNA UNIVERSITY OF ECONOMICS AND BUSINESS   (Austria)

Author keywords

[No Author keywords available]

Indexed keywords

EID: 79952916713     PISSN: 00221090     EISSN: 17566916     Source Type: Journal    
DOI: 10.1017/S0022109010000554     Document Type: Article

References (54)

1. Acharya, V. V.; S. T. Bharath; and A. Srinivasan. "Does Industry-Wide Distress Affect Defaulted Firms? Evidence from Creditor Recoveries." Journal of Financial Economics, 85(2007), 787-821.
2. Altman, E. I. "Are Historically Based Default and Recovery Models in the High-Yield and Distressed Debt Markets Still Relevant in Today's Credit Environment?" Working Paper, New York University (2006).
3. Altman, E. I.; B. Brady; A. Resti; and A. Sironi. "The Link between Default and Recovery Rates: Theory, Empirical Evidence, and Implications." Journal of Business, 78(2005), 2203-2227. (Pubitemid 43207107)
4. Altman, E. I., and V. M. Kishore. "Almost Everything You Wanted to Know about Recoveries on Defaulted Bonds." Financial Analyst Journal, 52(1996), 57-64. (Pubitemid 127530373)
5. Altman, E.; A. Resti; and A. Sironi. "Default Recovery Rates in Credit Risk Modelling: A Review of the Literature and Empirical Evidence." Economic Notes by Banca Monte dei Paschi di Siena SpA, 33(2004), 183-208. (Pubitemid 39412125)
6. Bakshi, G.; C. Cao; and Z. Chen. "Empirical Performance of Alternative Option Pricing Models." Journal of Finance, 52(1997), 2003-2049. (Pubitemid 127344421)
7. Bakshi, G.; D. Madan; and F. X. Zhang. "Investigating the Role of Systematic and Firm-Specific Factors in Default Risk: Lessons from Empirically Evaluating Credit Risk Models." Journal of Business, 79 (2006a), 1955-1987. (Pubitemid 44369756)
8. Bakshi, G.; D. Madan; and F. X. Zhang. "Understanding the Role of Recovery in Default Risk Models: Empirical Comparisons and Implied Recovery Rates." Working Paper, University of Maryland (2006b).
9. Barndorff-Nielsen, O. E., and N. Shephard. "Econometrics of Testing Jumps in Financial Economics Using Bipower Variation." Journal of Financial Econometrics, 4(2006), 1-30. (Pubitemid 43091647)
10. Bates, D. S. "The Crash of '87: Was It Expected? The Evidence from Options Markets." Journal of Finance, 46(1991), 1009-1044.
11. Berndt, A.; R. Douglas; D. Duffie; M. Ferguson; and D. Schranz. "Measuring Default Risk Premia from Default Swap Rates and EDFs." Working Paper, Stanford University (2008).
12. Brigo, D., and A. Alfonsi. "Credit Default Swap Calibration and Derivatives Pricing with the SSRD Stochastic Intensity Model." Finance and Stochastics, 9(2005), 29-42. (Pubitemid 40042046)
13. Brigo, D., and L. Cousot. "The Stochastic Intensity SSRD Model Implied Volatility Patterns for Credit Default Swap Options and the Impact of Correlation." International Journal of Theoretical and Applied Finance, 9(2006), 315-339. (Pubitemid 43751441)
14. Brigo, D., and N. El-Bachir. "Credit Derivatives Pricing with a Smile-Extended Jump Stochastic Intensity Model." ICMA Centre Discussion Papers in Finance DP2006-13, University of Reading (2006).
15. Brigo, D., and F. Mercurio. Interest Rate Models: Theory and Practice. With Smile, Inflation and Credit, 2nd ed. Springer Finance. Heidelberg, Germany: Springer-Verlag (2006).
16. Broadie, M.; M. Chernov; and M. Johannes. "Model Specification and Risk Premia: Evidence from Futures Options Market." Journal of Finance, 62(2007), 1453-1490.
17. Bruche, M., and C. González-Aguado. "Recovery Rates, Default Probabilities, and the Credit Cycle." Journal of Banking and Finance, 34(2010), 754-764.
18. Carr, P., and L. Wu. "Stock Options and Credit Default Swaps: A Joint Framework for Valuation and Estimation." Journal of Financial Econometrics, 8(2010), 409-449.
19. Chen, R.-R.; X. Cheng; F. J. Fabozzi; and B. Liu. "An Explicit, Multi-Factor Credit Default Swap Pricing Model with Correlated Factors." Journal of Financial and Quantitative Analysis, 43(2008), 123-160.
20. Chen, R.-R.; X. Cheng; and L. Wu. "Dynamic Interactions between Interest Rate, Credit, and Liquidity Risks: Theory and Evidence from the Term Structure of Credit Default Swap Spreads." Working Paper, Rutgers University and Baruch College (2005).
21. Chernov, M.; A. R. Gallant; E. Ghysels; and G. Tauchen. "Alternative Models for Stock Price Dynamics." Journal of Econometrics, 116(2003), 225-257.
22. Collin-Dufresne, P.; R. S. Goldstein; and J. Helwege. "Is Credit Event Risk Priced? Modeling Contagion via the Updating of Beliefs." Working Paper, Carnegie Mellon University, Washington University, and Ohio State University (2003).
23. Collin-Dufresne, P.; R. Goldstein; and J. Hugonnier. "A General Formula for Valuing Defaultable Securities." Econometrica, 72(2004), 1377-1407.
24. Collin-Dufresne, P.; R. S. Goldstein; and C. S. Jones. "Can Interest Rate Volatility Be Extracted from the Cross Section of Bond Yields?" Journal of Financial Economics, 94(2009), 47-66.
25. Cont, R., and P. Tankov. Financial Modelling with Jump Processes. Financial Mathematics Series. Boca Raton, FL: Chapman & Hall/CRC (2004).
26. Cremers, K. J. M.; J. Driessen; and P. Maenhout. "Explaining the Level of Credit Spreads: Option-Implied Jump Risk Premia in a Firm Value Model." Review of Financial Studies, 21(2008), 2209-2242.
27. Driessen, J. "Is Default Event Risk Priced in Corporate Bonds?" Review of Financial Studies, 18(2005), 165-195. (Pubitemid 40140328)
28. Duffee, G. R. "Term Premia and Interest Rate Forecasts in Affine Models." Journal of Finance, 57(2002), 405-443. (Pubitemid 36937835)
29. Duffie, D.; D. Filipović, and W. Schachermayer. "Affine Processes and Applications in Finance." Annals of Applied Probability, 13(2003), 984-1053. (Pubitemid 39050996)
30. Duffie, D.; J. Pan; and K. Singleton. "Transform Analysis and Asset Pricing for Affine Jump-Diffusions." Econometrica, 68(2000), 1343-1376.
31. Duffie, D.; L. Saita; and K. Wang. "Multi-Period Corporate Default Prediction with Stochastic Covariates." Journal of Financial Economics, 83(2007), 635-665.
32. Duffie, D.; M. Schroder; and C. Skiadas. "Recursive Valuation of Defaultable Securities and the Timing of Resolution of Uncertainty." Annals of Applied Probability, 6(1996), 1075-1090.
33. Duffie, D., and K. J. Singleton. "An Econometric Model of the Term Structure of Interest-Rate Swap Yields." Journal of Finance, 52(1997), 1287-1321. (Pubitemid 127342544)
34. Emery, K.; S. Ou; J. Tennant, F. Kim; and R. Cantor. "Corporate Default and Recovery Rates, 1920-2007." Moodys.com (2008).
35. Eraker, B. "Do Stock Prices and Volatility Jump? Reconciling Evidence from Spot and Option Prices." Journal of Finance, 59(2004), 1367-1404.
36. Eraker, B.; M. Johannes; and N. Polson. "The Impact of Jumps in Volatility and Returns." Journal of Finance, 58(2003), 1269-1300.
37. Feldhütter, P., and D. Lando. "Decomposing Swap Spreads." Journal of Financial Economics, 88(2008), 375-405.
38. Houweling, P., and T. Vorst. "Pricing Default Swaps: Empirical Evidence." Journal of International Money and Finance, 24(2005), 1200-1225. (Pubitemid 43012813)
39. Jacod, J., and A. N. Shiryaev. Limit Theorems for Stochastic Processes, 2nd ed. Berlin, Germany: Springer-Verlag (2003).
40. Jarrow, R.; D. Lando; and F. Yu. "Default Risk and Diversification: Theory and Applications." Mathematical Finance, 15(2005), 1-26. (Pubitemid 40306164)
41. Jarrow, R. A., and F. Yu. "Counterparty Risk and the Pricing of Defaultable Securities." Journal of Finance, 56(2001), 1765-1799. (Pubitemid 33581918)
42. Johannes, M. "The Statistical and Economic Role of Jumps in Continuous-Time Interest Rate Models." Journal of Finance, 59(2004), 227-260. (Pubitemid 38389596)
43. Johannes, M., and N. Polson. "MCMC Methods for Continuous-Time Financial Econometrics." In Handbook of Financial Econometrics, Vol. 2, Y. Aït-Sahalia and L. Hansen, eds. Oxford, UK and Amsterdam, The Netherlands: North-Holland (2010), 1-66.
44. Jones, C. S. "Bayesian Estimation of Continuous-Time Finance Models." Working Paper, University of Rochester (1998).
45. Kusuoka, S. "A Remark on Default Risk Models." In Advances in Mathematical Economics, Vol. 1, S. Kusuoka and T. Maruyama, eds. Tokyo, Japan: Springer-Verlag (1999), 69-82.
46. Lee, S. S., and P. A. Mykland. "Jumps in Financial Markets: A New Nonparametric Test and Jump Dynamics." Review of Financial Studies, 21(2008), 2535-2563.
47. Longstaff, F. A.; S. Mithal; and E. Neis. "Corporate Yield Spreads: Default Risk or Liquidity? New Evidence from the Credit Default Swap Market." Journal of Finance, 60(2005), 2213-2253. (Pubitemid 41400806)
48. Pan, J., and K. J. Singleton. "Default and Recovery Implicit in the Term Structure of Sovereign CDS Spreads." Journal of Finance, 63(2008), 2345-2384.
49. Singh, M. "A New Road to Recovery." Risk Magazine, 17(2004), 108-110.
50. Tang, D. Y., and H. Yan. "Liquidity and Credit Default Swap Spreads." Working Paper, Kennesaw State University and University of South Carolina (2007).
51. Varma, P., and R. Cantor. "Determinants of Recovery Rates on Defaulted Bonds and Loans for North American Corporate Issuers: 1983-2003." Moodys.com (2004).
52. Varma, P.; R. Cantor; and D. Hamilton. "Recovery Rates on Defaulted Corporate Bonds and Preferred Stocks, 1982-2003." Moodys.com (2003).
53. Verde, M.; E. Rosenthal; M. Oline; and E. Tutterow. "The Rising Corporate Default Wave." FitchRatings.com (2008).
54. Zhang, F. X. "What Did the Credit Market Expect of Argentina Default? Evidence from Default Swap Data." Working Paper, Federal Reserve Board (2003).