Default, liquidity and crises: an econometric framework
Alain Monfort () and
Working papers from Banque de France
In this paper, we present a general discrete-time affine framework aimed at jointly modeling yield curves associated with different debtors. The underlying fixed-income securities may differ in terms of credit quality and/or in terms of liquidity. The risk factors follow conditionally Gaussian processes, with drifts and variance-covariance matrices that are subject to regime shifts described by a Markov chain with (historical) non-homogenous transition probabilities. While flexible, the model remains tractable. In particular, bond prices are given by quasi-explicit formulas. Various numerical examples are proposed, including a sector-contagion model and credit-rating modeling.
Keywords: credit risk; liquidity risk; term structure; affine model; regime switching; Car process. (search for similar items in EconPapers)
JEL-codes: E43 E44 E47 G12 G24 (search for similar items in EconPapers)
Pages: 44 pages
New Economics Papers: this item is included in nep-ban, nep-ecm, nep-mac and nep-rmg
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https://publications.banque-france.fr/sites/defaul ... g-paper_340_2011.pdf (application/pdf)
Journal Article: Default, Liquidity, and Crises: an Econometric Framework (2013)
Working Paper: Default, Liquidity and Crises: An Econometric Framework (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:340
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