Equilibrium with Default and Endogenous Collateral

We study a two‐period general equilibrium model with incomplete asset markets and default. We make collateral endogenous by allowing each seller of assets to fix the level of collateral. Sellers are required to provide collateral whose first‐period value, per unit of asset, exceeds the asset price by an arbitrarily small amount. Moreover, borrowers are also required to be fully covered by the purchase, in the first period, of state‐by‐state default insurance. These insurance contracts are offered by lenders. The insurance cost or revenue is a linear charge and plays the role of a spread penalizing borrowers who will incur in default and benefiting lenders who will suffer default. Under these assumptions, equilibrium always exists.     

资本资产定价模型的扩展及其在保险中的应用

传统的资本资产定价模型是在一系列过于严格化、理想化的条件下建立起来的。针对现实资本市场情况,通过对资本资产定价模型的应用条件的部分修改,如增加保险公司存在违约风险、交易费用和税收的条件,并且讨论交易费用分别为固定值和保费的函数时的情形以及税收分为固定值和变量的情形,对保费定价问题进行模型扩展。理论推导结果显示,在存在违约风险情况下,保险公司所收保费应该更低;承保费用越少,所需保费就越少;存在税负条件下的公平保费与税收水平有关。     

存款保险制度能否降低银行系统风险

存款保险制度能否通过对可能的存款损失提供保险来降低银行风险,维护金融系统的稳定?或者会对银行道德风险行为形成逆向激励,加大了破产的可能性?目前有一种简单的模型对存款保险与银行系统风险关系及其影响因素能进行分析,并以此得出相应的结论与建议。     

企业投融资互动机制下的信贷违约风险——基于中国上市公司的实证研究

本文以中国上市公司为样本,实证分析了在负债融资与投资决策相互作用的机制下企业信贷违约风险的变化规律.实证结果表明,整体上投资支出会促进信贷违约风险,负债融资会对其产生抑制;在负债融资导致的过度投资情形下,企业投资对信贷违约风险的促进作用将更明显,而过度投资会抑制企业最优负债融资水平,从而带来更低的最优信贷违约风险;短期负债融资会促进企业信贷违约风险的增加.文章为信贷违约风险控制探寻了一种从企业微观财务决策角度进行分析的全新视角.     

DEFAULT RISK AND DIVERSIFICATION: THEORY AND EMPIRICAL IMPLICATIONS

Recent advances in the theory of credit risk allow the use of standard term structure machinery for default risk modeling and estimation. The empirical literature in this area often interprets the drift adjustments of the default intensity's diffusion state variables as the only default risk premium. We show that this interpretation implies a restriction on the form of possible default risk premia, which can be justified through exact and approximate notions of "diversifiable default risk." The equivalence between the empirical and martingale default intensities that follows from diversifiable default risk greatly facilitates the pricing and management of credit risk. We emphasize that this is not an equivalence in distribution, and illustrate its importance using credit spread dynamics estimated in Duffee (1999) . We also argue that the assumption of diversifiability is implicitly used in certain existing models of mortgage-backed securities.     

OPTIMAL INVESTMENT IN CREDIT DERIVATIVES PORTFOLIO UNDER CONTAGION RISK

We consider the optimal portfolio problem of a power investor who wishes to allocate her wealth between several credit default swaps (CDSs) and a money market account. We model contagion risk among the reference entities in the portfolio using a reduced‐form Markovian model with interacting default intensities. Using the dynamic programming principle, we establish a lattice dependence structure between the Hamilton‐Jacobi‐Bellman equations associated with the default states of the portfolio. We show existence and uniqueness of a classical solution to each equation and characterize them in terms of solutions to inhomogeneous Bernoulli type ordinary differential equations. We provide a precise characterization for the directionality of the CDS investment strategy and perform a numerical analysis to assess the impact of default contagion. We find that the increased intensity triggered by default of a very risky entity strongly impacts size and directionality of the investor strategy. Such findings outline the key role played by default contagion when investing in portfolios subject to multiple sources of default risk.     

I'll have what she's having: (Social) Perceptions of default options and implications for marketing and decision making

The power that default options have in shaping choice has been well established, yet relatively little is known about how decision makers experience and interpret such preselected options. Research suggests that individuals assume defaults represent a recommended course of action, yet the basis for this recommendation is unclear. Across two experimental studies, we explored consumer theories of default recommendations, examining spontaneous and experimentally manipulated perceptions of the basis of the default, and the impact on decision making across different contexts. Evidence across diverse populations and tasks shows that options were retained to a greater extent when represented as the default, consistent with classic default effects. Furthermore, a significant default effect emerged when the decision context was framed as complex. In line with research on social influence, defaults were most effective when they were presumed to reflect the most popular option (regardless of context). Interestingly, participants rated defaults as being more likely to represent the most popular option, regardless of decision context or default explanation provided to them. These findings highlight the importance of understanding the contexts in which default choices are relied upon and how those defaults are perceived by decision makers.     

Default Patterns in Seven EU Countries: A Random Forest Approach

This study uses the relatively new “random forest” (RF) approach, which is based on decision-tree analysis by combining the results of a large set of decision trees. RFs have so far been little used for default prediction but offer an interesting alternative to well-established default prediction techniques. Based on accounting data from 945,062 observed European firms from seven countries in 2010 and 1,019,312 firms in 2011, we provide evidence on the country-specific default patterns. Because of the strong imbalance of the data sets with regard to the solvency status, standard RF implementations have to be modified to allow the estimation of realistic default propensities. We find that by far most accurate out-of-sample default propensities can be obtained for Italy followed by Portugal and Spain and the least accurate for the UK and Finland. The debt ratio, rate of return on sales, dynamic gearing ratio, and the rate of return on assets are found to be the most important variables for default prediction. The variable importance rankings are rather country specific, pointing to heterogeneity in the default patterns across the countries studied.     

What explains default risk premium during the financial crisis? Evidence from Japan

As is well documented, subprime mortgage markets carried significant default risk. This paper investigates the relationship between default risk premium, stock market conditions and macroeconomic variables during the financial crisis. Using iTraxx Japan Credit Default Swap (CDS) index spreads covering the period from March 2006 to November 2009, we employ a time-varying dynamic factor model with Markov regime switching to generate regime probabilities for default risk. We analyze the sensitivity of default risk premium changes to stock market conditions and macroeconomic variables by using two-state Markov switching models: a crisis regime sparked by rising loan defaults in the sub-prime mortgage market, and a non-crisis regime. We found strong evidence that the relationship between default risk premium changes, stock market and macroeconomic variables is regime-dependent. Our results suggest that during periods of crisis, CDS indices behave as a higher-risk indicator and become more sensitive to stock market conditions and macroeconomic variables. This paper examines the effects of the financial crisis in explaining the default risk premium. Understanding the determinants of default risk premium is important for financial analysts, economic policy makers and credit risk management.     

Effect of corporate governance on default risk in financial versus nonfinancial firms: Canadian evidence

This paper investigates the influence of corporate governance variables on default risk of Canadian firms after the 2008 financial crisis. We provide evidence that important governance mechanisms have differential impacts between Canadian financial and nonfinancial firms. Ownership structure, (e.g., institutional ownership and insider ownership), has a significant impact on the default risk of financial firms but not on nonfinancial firms. Nonfinancial firms with more independent boards are associated with lower default risk, while financial firms with larger boards and more independent boards have higher default risk. In addition, although cross‐listing in the US reduces the default risk for Canadian nonfinancial firms, it actually increases the risk for Canadian financial firms during the postcrisis period. Copyright © 2016 ASAC. Published by John Wiley & Sons, Ltd.     

The Pricing of Catastrophe Equity Put Options with Default Risk

In this paper, we present a pricing model for catastrophe equity put options with default risk by assuming that the default of the option issuer may occur at any time prior to maturity of the option. Catastrophic events are assumed to occur according to a doubly stochastic Poisson process, and stock price is affected by the catastrophe losses, which follow the compound doubly stochastic Poisson process. As for default risk, we adopt typical structural approaches, and we also allow the correlation between the underlying stock and the assets of the option issuer. Under this framework, we derive a pricing formula for catastrophe equity put options with default risk. Finally, numerical analysis is presented to illustrate effects of default risk on catastrophe equity put option prices.     

CREDIT SPREADS, OPTIMAL CAPITAL STRUCTURE, AND IMPLIED VOLATILITY WITH ENDOGENOUS DEFAULT AND JUMP RISK

We propose a two-sided jump model for credit risk by extending the Leland–Toft endogenous default model based on the geometric Brownian motion. The model shows that jump risk and endogenous default can have significant impacts on credit spreads, optimal capital structure, and implied volatility of equity options: (1) Jumps and endogenous default can produce a variety of non-zero credit spreads, including upward, humped, and downward shapes; interesting enough, the model can even produce, consistent with empirical findings, upward credit spreads for speculative grade bonds. (2) The jump risk leads to much lower optimal debt/equity ratio; in fact, with jump risk, highly risky firms tend to have very little debt. (3) The two-sided jumps lead to a variety of shapes for the implied volatility of equity options, even for long maturity options; although in general credit spreads and implied volatility tend to move in the same direction under exogenous default models, this may not be true in presence of endogenous default and jumps. Pricing formulae of credit default swaps and equity default swaps are also given. In terms of mathematical contribution, we give a proof of a version of the "smooth fitting" principle under the jump model, justifying a conjecture first suggested by Leland and Toft under the Brownian model.     

ARBITRAGE‐FREE BILATERAL COUNTERPARTY RISK VALUATION UNDER COLLATERALIZATION AND APPLICATION TO CREDIT DEFAULT SWAPS

We develop an arbitrage‐free valuation framework for bilateral counterparty risk, where collateral is included with possible rehypothecation. We show that the adjustment is given by the sum of two option payoff terms, where each term depends on the netted exposure, i.e., the difference between the on‐default exposure and the predefault collateral account. We then specialize our analysis to credit default swaps (CDS) as underlying portfolios, and construct a numerical scheme to evaluate the adjustment under a doubly stochastic default framework. In particular, we show that for CDS contracts a perfect collateralization cannot be achieved, even under continuous collateralization, if the reference entity’s and counterparty’s default times are dependent. The impact of rehypothecation, collateral margining frequency, and default correlation‐induced contagion is illustrated with numerical examples.     

On Models of Default Risk

We first discuss some mathematical tools used to compute the intensity of a single jump process, in its canonical filtration. In the second part, we try to clarify the meaning of default and the links between the default time, the asset's filtration, and the intensity of the default time. We finally discuss some examples.     

Variations in municipal bond default risk premia by term-to-maturity

A recent study by McInish of the influence of term-to-maturity on municipal bond default risk premia concluded that default risk premia were not invariant with respect to maturity. That study, as well as an earlier one by Robinson, failed to consider the effects of issuer credit quality. Using a large cross-sectional sample of general obligation bonds sold between 1977 and 1980, the influence of issuer credit quality on the relationship between term-to-maturity and default risk premia is investigated. The results indicate that default risk premia were an increasing function of maturity, and that this effect was larger for lower rated bonds.     

DEFAULT AND SYSTEMIC RISK IN EQUILIBRIUM

We develop a finite horizon continuous time market model, where risk‐averse investors maximize utility from terminal wealth by dynamically investing in a risk‐free money market account, a stock, and a defaultable bond, whose prices are determined via equilibrium. We analyze the endogenous interaction arising between the stock and the defaultable bond via the interplay between equilibrium behavior of investors, risk preferences and cyclicality properties of the default intensity. We find that the equilibrium price of the stock experiences a jump at default, despite that the default event has no causal impact on the underlying economic fundamentals. We characterize the direction of the jump in terms of a relation between investor preferences and the cyclicality properties of the default intensity. We conduct a similar analysis for the market price of risk and for the investor wealth process, and determine how heterogeneity of preferences affects the exposure to default carried by different investors.     

违约精神损害赔偿比较研究

从比较视域本文考察英美法系、大陆法系主要国家及地区的违约精神损害赔偿制度,当今世界许多国家及地区均在不同程度上认可违约精神损害赔偿,尽管立法有宽严,但判例突破已成为一种不可扭转的强大趋势。英美法以不断出现的司法判例为动因,以"合同性质"、"合同目的"、"可预见性"及"明显后果"等为限制条件,把握违约精神损害赔偿的尺度,再到逐步扩大在司法实践中的运用,使之类型化,从而明确违约精神损害赔偿的适用范围。大陆法主要是通过扩大法条解释、变通救济理念予以救济,或通过增设法律条文进行规定,满足现实对违约精神损害赔偿的需求,这些均可作为我国构建违约精神损害赔偿制度的现实基础。     

Impacts of the borrower's attributes,loan contract contents,and collateral characteristics on mortgage loan default

This paper explores the factors influencing mortgage loan default and default probability by using the data from the mortgage loans of a case financial institution. The results indicate that the borrower's gender, the borrower's job position, whether the regional codes of the borrower's present residence and registered permanent residence are the same, the degree of relationship between the borrower and the guarantor, the loan-to-value ratio, the use status of collateral, and the located region of collateral are significantly positively correlated with the default probability. However, the education degree and the loan amount are significantly negatively correlated with the default probability.     

What risks do corporate bond put features insure against?

Corporate bond prices are known to be influenced by default and term structure risk in addition to non‐default risks such as illiquidity. Putable corporate bonds allow investors to sell their holdings back to the issuer and may thus provide insurance against all of these risks. We first document empirically that embedded put option values are related to proxies for all three. In a second step, we develop a valuation model that simultaneously captures default and interest rate risk. We use this model to disentangle the reduction in yield spread enjoyed by putable bonds that can be attributed to each risk. Perhaps surprisingly, the most important reduction is due to mitigated default or spread risk, followed by term structure risk. The reduction in the non‐default component is present but rather small.     

MODELING SOVEREIGN RISKS: FROM A HYBRID MODEL TO THE GENERALIZED DENSITY APPROACH

Motivated by the European sovereign debt crisis, we propose a hybrid sovereign default model that combines an accessible part taking into account the evolution of the sovereign solvency and the impact of critical political events, and a totally inaccessible part for the idiosyncratic credit risk. We obtain closed‐form formulas for the probability that the default occurs at critical political dates in a Markovian setting. Moreover, we introduce a generalized density framework for the hybrid default time and deduce the compensator process of default. Finally, we apply the hybrid model and the generalized density to the valuation of sovereign bonds and explain the significant jumps in long‐term government bond yields during the sovereign crisis.