Institut für Kommunikationswissenschaft in Jena gegründet

Ohne Zusammenfassung     

Trends in world trade

The current problems of international trade can certainly not be solved by resorting to the arsenal of national trade policies. World-wide economic losses would be the inevitable result. Therefore the first set of tripartite talks between the “major trading powers”, the USA, the EC and Japan, scheduled for October this year and dealing with mutual trade problems, will be a step in the right direction providing that these talks do not result in a defensive alliance against the trading interests of the developing countries.     

INCORPORATING RISK AND AMBIGUITY AVERSION INTO A HYBRID MODEL OF DEFAULT

It is well known that purely structural models of default cannot explain short‐term credit spreads, while purely intensity‐based models lead to completely unpredictable default events. Here we introduce a hybrid model of default, in which a firm enters a “distressed” state once its nontradable credit worthiness index hits a critical level. The distressed firm then defaults upon the next arrival of a Poisson process. To value defaultable bonds and credit default swaps (CDSs), we introduce the concept of robust indifference pricing. This paradigm incorporates both risk aversion and model uncertainty. In robust indifference pricing, the optimization problem is modified to include optimizing over a set of candidate measures, in addition to optimizing over trading strategies, subject to a measure dependent penalty. Using our model and valuation framework, we derive analytical solutions for bond yields and CDS spreads, and find that while ambiguity aversion plays a similar role to risk aversion, it also has distinct effects. In particular, ambiguity aversion allows for significant short‐term spreads.