Showing papers by "J.P. Morgan & Co. published in 2002"

Exploring for the Determinants of Credit Risk in Credit Default Swap Transaction Data: Is Fixed-Income Markets Information Suffcient to Evaluate Credit Risk?

Abstract: We investigate the influence of various fundamental variables on a cross-section of credit default swap transaction data. Credit default swap rates can be seen as a superior proxy to credit risk than bond spreads are. Because we have transaction prices rather than quotes, we have thus observations of financial markets’ assessment of credit risk. Therefore our findings are relevant not only for the understanding of credit default swaps but for credit risk in general. The fundamental variables include fixed-income market data such as ratings, interest rate data and bond spreads as well as equity market data such as variance and market leverage (so called ” structural variables ”). We test for the stability of the influence of the different fundamental variables along several lines. We find evidence that most of the variables predicted by credit risk pricing theories have a significant impact on the observed levels of credit default prices. We also provide an international analysis of corporate credit risk, as half of our corporate sample is not US based, as well as some re-sults on sovereign credit risk. Using this information we are able to explain a significant portion of the cross-sectional variation in our sample with adjusted R 2 reaching 82% using the variables predicted by classical theoretical models. However there are important behavioral differences between high rated and low rated underlyings, sovereign and corporate underlyings and underlyings from different markets (US vs no US). We analyze these differences. We also find evidence of behavioral, momentum-like issues in equity markets-credit risk relationships. Overall, strong results show the importance of considering so called ”structural variables ” and equity market information as well as stochastic interest rates along with classical ratings when pricing credit risk overall. Furthermore, and contrarily to previous results, equity market information seems to matter for both high and low ratings, albeit in different ways. We implement a reduced-form model and analyze the errors obtained. Equity market variables seem to explain a large part of the errors. Overall, we document the importance of taking into account equity markets when doing credit risk analysis.

Business process reengineering and performance improvement: The case of Chase Manhattan Bank

Abstract: Previous researchers have investigated the principles of business process reengineering (BPR) and how firms approach this process. However, previous research makes no distinction among BPR projects in different organizational contexts. The present research investigates the BPR methods best suited for financial institutions. Based on a case study conducted in Chase Manhattan Bank, this research attempts to provide guidelines for BPR projects in financial institutions that will help them achieve dramatic performance gains. Chase BPR projects include four phases encompassing a wide scope of activities: energize, focus, invent, and launch. As seen in Chase BPR projects such as e‐fund disbursement cards and service charge reengineering, these efforts resulted in new products and services in addition to producing dramatic increases in revenue and operating savings.

Locating boosted Kerr and Schwarzschild apparent horizons

Abstract: We describe a finite-difference method for locating apparent horizons in generic spacetimes and illustrate its capabilities on boosted Kerr and Schwarzschild black holes. Our model spacetime is given by the Kerr-Schild metric. We apply a Lorentz boost to this spacetime metric and then carry out a 311 decomposition. The result is a slicing of Kerr-Schwarzschild spacetime in which the black hole is propagated and Lorentz contracted. We show that our method can locate distorted apparent horizons efficiently and accurately.

Relative Implied-Volatility Arbitrage with Index Options

Abstract: In the study reported here, we investigated the efficiency of markets as to the relative pricing of similar risk by using implied volatilities of options on highly correlated indexes and a statistical arbitrage strategy to profit from potential mispricings. We first analyzed the interrelationships over time of the three most highly correlated and liquid pairs of U.S. stock indexes. Based on this analysis, we derived a relative relationship between implied volatilities for each pair. If this relationship was violated (i.e., if we detected a relative implied-volatility deviation), we suspected a relative mispricing. We used a simple no-arbitrage barrier to identify significant deviations and implemented a statistical arbitrage trade each time such a deviation was recorded. We found that, although many deviations can be observed, only some of them are large enough to be exploited profitably in the presence of bid–ask spreads and transaction costs.

An Air-Cooled Jacket Designed to Protect Unsteady Pressure Transducers at Elevated Temperatures in Gas Turbine Engines

Abstract: Current unsteady pressure sensors have a limiting upper temperature range and with few exceptions cannot survive at the temperatures experienced in gas turbine aero-engines. This paper describes a design and development study of an air-cooled commercially available unsteady pressure transducer capable of operation at temperatures exceeding 900 °C. The research objective for this work is the following: To design a cooling adapter, using air as the cooling media, capable of protecting a standard unsteady pressure transducer, whose maximum operating temperature is around 250 °C. in a gas turbine engine environment where temperatures typically reach 800–l500 °C. In addition the provision of thermal protection must not adversely effect the measurement of unsteady pressure and the cooling adapter and transducer assembly must be small enough to access critical parts of the engine. Current transducer can operate at temperatures exceeding 250 °C; the purpose of this paper is to demonstrate the additional protection offered by air-cooling. The paper describes the validation experiments conducted for this design, the level of thermal protection achieved and the frequency response of the transducer/cooling jacket assembly.Copyright © 2002 by ASME

CMBS Loan Defaults

Abstract: This examination of several empirical models that allow for loan seasoning and recession uses data from a recent Fitch CMBS loan default study Loan seasoning produces a permanent increase in default rates, while the recession bump in defaults is temporary Thus, different views of the relative importance of seasoning and the recession imply optimistic and pessimistic views of the future