|
Joint Applied Math and Probability Seminar
Stochastics of Corporate Default
|
|
I will compare current leading stochastic models of default by corporations. Competing approaches to the joint distribution of multi-firm default times include: (1) parametric copula models, and (2) doubly-stochastic (Cox) counting processes. The burgeoning market for credit derivatives and new capital regulations for banks have triggered a high-stakes search for an acceptable "standard approach." I will present empirical regularities connecting firm-specific default covariates (leverage and volatility), macro-economic performance, the market pricing of credit risk (default-swap rates), and the clustering of U.S. corporate default times since 1972. |