Probabilities of Default and the Market Price of Risk in a Distressed Economy Raphael A. Espinoza

ISBN: 9781283562522

Published: April 1st 2011

ebook

16 pages


Description

Probabilities of Default and the Market Price of Risk in a Distressed Economy  by  Raphael A. Espinoza

Probabilities of Default and the Market Price of Risk in a Distressed Economy by Raphael A. Espinoza
April 1st 2011 | ebook | PDF, EPUB, FB2, DjVu, AUDIO, mp3, RTF | 16 pages | ISBN: 9781283562522 | 7.17 Mb

We propose an original method to estimate the market price of risk under stress, which is needed to correct for risk aversion the CDS-implied probabilities of distress. The method is based, for simplicity, on a one-factor asset pricing model. TheMoreWe propose an original method to estimate the market price of risk under stress, which is needed to correct for risk aversion the CDS-implied probabilities of distress.

The method is based, for simplicity, on a one-factor asset pricing model. The market price of risk under stress (the expectation of the market price of risk, conditional on it exceeding a certain threshold) is computed from the price of risk (which is the variance of the market price of risk) and the discount factor (which is the inverse of the expected market price of risk). The threshold is endogenously determined so that the probability of the price of risk exceeding it is also the probability of distress of the asset. The price of risk can be estimated via different methods, for instance derived from the VIX or from the factors in a Fama-MacBeth regression.



Enter the sum





Related Archive Books



Related Books


Comments

Comments for "Probabilities of Default and the Market Price of Risk in a Distressed Economy":


visitbaztanbidasoa.com

©2011-2015 | DMCA | Contact us