Abstract

http://ssrn.com/abstract=1911881
 
 

References (63)



 
 

Citations (2)



 


 



Default, Liquidity and Crises: An Econometric Framework


Alain Monfort


National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST); National Bureau of Economic Research (NBER); Maastricht University

Jean-Paul Renne


Banque de France

August 1, 2011

Banque de France Working Paper No. 340

Abstract:     
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.

Number of Pages in PDF File: 44

Keywords: credit risk, liquidity risk, term structure, affine model, regime switching, car process

JEL Classification: E43, E44, E47, G12, G24

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Date posted: August 19, 2011 ; Last revised: December 11, 2011

Suggested Citation

Monfort, Alain and Renne, Jean-Paul, Default, Liquidity and Crises: An Econometric Framework (August 1, 2011). Banque de France Working Paper No. 340. Available at SSRN: http://ssrn.com/abstract=1911881 or http://dx.doi.org/10.2139/ssrn.1911881

Contact Information

Alain Monfort (Contact Author)
National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST) ( email )
15 Boulevard Gabriel Peri
92245 Malakoff Cedex, 1 92245
France
+33 1 4117 6079 (Phone)
+33 1 4117 6046 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Maastricht University
P.O. Box 616
Maastricht, 6200MD
Netherlands
Jean-Paul Renne
Banque de France ( email )
Paris
France
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