Default Risk in Bond and Credit Derivatives Markets

1 Introduction.- 2 On the Economic Content of Models of Default Risk.- 2.1 Introduction.- 2.2 A Criterion for Economic Interpret ability.- 2.3 Models of Default Risk.- 2.3.1 Reduced-Form Models.- 2.3.2 Firm Value Models.- 2.3.3 Hybrid Approaches.- 2.4 Interpret ability of Firm Value Models.- 2.5 Conclusion.- 3 Intensity-Based Modeling of Default.- 3.1 Introduction.- 3.2 Default Arrival and the Default Event.- 3.3 The Hazard Rate.- 3.4 Loss Given Default.- 3.4.1 Nature of the Recovery Process.- 3.4.2 Recovery Regime.- 3.5 Defaultable Bond Prices.- 3.6 Implications for the Empirical Studies.- 3.7 Affine Term Structure Models in the Context of Default Risk.- 3.7.1 Model Description.- 3.7.2 Complet ely Affine Models with Independent Factors.- 3.7.3 Incorporating Correlation between Risk-Free and Risky Rates.- 3.7.4 Maximal Models: Essentially Affine Specifications.- 3.8 Summary and Outlook.- 4 The Empirical Performance of Reduced-Form Models of Default Risk.- 4.1 Preliminaries.- 4.1.1 Data Description.- 4.1.2 Defaultable Term Structure Estimation.- 4.1.3 Risk-Free Term Structure Estimation.- 4.1.4 Discussion of Data Quality.- 4.2 Estimation of Complet ely Affine Term Structure Models for Defaultable Rates.- 4.2.1 Estimation Technique.- 4.2.1.1 State-Space Representation.- 4.2.1.2 State-Sp ace Specification.- 4.2.1.3 Kalman Filter Mechanism.- 4.2.2 Implementation.- 4.2.3 Results.- 4.2.3.1 Preferred Models.- 4.2.3.2 In- and Out-of-Sample Fit.- 4.2.3.3 Paramet er Estimates.- 4.3 Estimation of Complet ely Affine Term Structure Models for Spreads.- 4.3.1 Implementation.- 4.3.2 Results.- 4.3.2.1 Preferred Models.- 4.3.2.2 In- and Out-of-Sample Fit.- 4.3.2.3 Parameter Estimates.- 4.4 In corporating Correlation.- 4.4.1 Implementation.- 4.4.2 Results.- 4.4.2.1 In- and Out-of-Sample Fit.- 4.4.2.2 Parameter Estimates.- 4.5 Estimation of Essentially Affine Term Structure Models for Defaultable Rates.- 4.5.1 Estimation Technique: Efficient Method of Moments.- 4.5.2 Implementation.- 4.5.3 Results.- 4.5.3.1 Auxiliary Model.- 4.5.3.2 Structural Model.- 4.6 Summary.- 5 Explaining Credit Default Swap Premia.- 5.1 Introduction.- 5.2 Modeling Idea.- 5.3 Data.- 5.4 Estimation and Results.- 5.5 Robustness Checks.- 5.6 Conclusion.- 6 Conclusion.- A Calculation of Volatility Proxies.- B Tables for Chapter 4.- C Tables for Chapter 5.- References.