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Do not Forget the Economy when Estimating Default Probabilities
Traditional rating systems do not include macroeconomic variables. This article shows techniques to integrate macroeconomic information into a rating model and then illustrates how the macroeconomic variables improve the performance of a model for small and medium sized companies.
Pricing Credit Derivatives with Uncertain Default Probabilities
In this article, the author presents a model for pricing credit spread options in an environment where the rating transition probabilities are uncertain parameters.
The Chemistry of Contagious Defaults
In this article, the authors have obtained a dynamical Markovian model of default interactions that describes portfolio’s dynamics endogenously through the mechanism of chemical reactions.
VaR as a Percentile
In this white paper Dr. Richard Diamond expands on the concept of Value at Risk (VAR) from a formula based on the critical value, to its true definition of being a property of the joint probability distribution of risk factors.
