Joint Model of Corporate Default Intensities and Macroeconomic Dynamics
2010
Māris Buiķis, Tatjana Židuļina

The paper presents a unified framework where a simple structural model of the macroeconomy is combined with an affine model of corporate default intensities. The main innovation of the paper is that the authors use structural macroeconomic framework, rather than starting from a reduced form representation and incorporate the structural model of macroeconomy in multivariate dynamics risk-neutral default intensities. The approach shows estimation of default intensity parameters from macroeconomic prospective. The combined model allows getting more precise corporate default intensities parameters and recovery rates that could be used for the fair CDS premium calculation.


Keywords
default risk event, default intensity, affine processes, macroeconomic factors, credit default swap, premium

Buiķis, M., Židuļina, T. Joint Model of Corporate Default Intensities and Macroeconomic Dynamics. IT and Management Science. Vol.44, 2010, pp.74-80. ISSN 1407-7493.

Publication language
English (en)
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