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Credit risk

About: Credit risk is a research topic. Over the lifetime, 18595 publications have been published within this topic receiving 382866 citations.


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Journal ArticleDOI
TL;DR: In this paper, the authors study self-excitation and crossexcitation of shocks in the Eurozone sovereign CDS market and derive closed-form formulae for CDS prices, and estimate the model by matching theoretical prices to their empirical counterparts.
Abstract: We study self- and cross-excitation of shocks in the Eurozone sovereign CDS market. We adopt a multivariate setting with credit default intensities driven by mutually exciting jump processes, to capture the salient features observed in the data, in particular, the clustering of high default probabilities both in time (over days) and in space (across countries). The feedback between jump events and the intensity of these jumps is the key element of the model. We derive closed-form formulae for CDS prices, and estimate the model by matching theoretical prices to their empirical counterparts. We find evidence of self-excitation and asymmetric cross-excitation. Using impulse-response analysis, we assess the impact of shocks and a potential policy intervention not just on a single country under scrutiny but also, through the effect on cross-excitation risk which generates systemic sovereign risk, on other interconnected countries.

84 citations

Journal ArticleDOI
TL;DR: In this paper, the authors question the impact of government guarantees on the pricing of default risk in credit and stock markets and, using a Merton-type credit model, provide evidence of a structural break in the valuation of U.S. bank debt in the course of the 2007-2009 financial crisis, manifesting in a lowered default boundary or, under the pre-crisis regime, in higher stock-implied credit spreads.
Abstract: We question the impact of government guarantees on the pricing of default risk in credit and stock markets and, using a Merton-type credit model, provide evidence of a structural break in the valuation of U.S. bank debt in the course of the 2007-2009 financial crisis, manifesting in a lowered default boundary, or, under the pre-crisis regime, in higher stock-implied credit spreads. A possible explanation is the asymmetric treatment of debt and equity in rescue measures, which tend to favor creditors. The discrepancies are driven by several factors including firm size, default correlation, and high ratings, thus corroborating our too-big-to-fail hypothesis.

84 citations

Journal ArticleDOI
TL;DR: In this paper, the interrelationships among risk, competition, and efficiency in Chinese banking industry between 2003 and 2013, with an efficiency-adjusted Lerner index and stability inefficiency as the indicators of competition and insolvency risk.

84 citations

Posted Content
TL;DR: In this paper, the authors show that firms with high aggregate risk find it costly to get credit lines and opt for cash in spite of higher opportunity costs and liquidity premium, and that firms rely more on cash than on credit lines.
Abstract: We model corporate liquidity policy and show that aggregate risk exposure is a key determinant of how firms choose between cash and bank credit lines. Banks create liquidity for firms by pooling their idiosyncratic risks. As a result, firms with high aggregate risk find it costly to get credit lines and opt for cash in spite of higher opportunity costs and liquidity premium. Likewise, in times when aggregate risk is high, firms rely more on cash than on credit lines. We verify these predictions empirically. Cross-sectional analyses show that firms with high exposure to systematic risk have a higher ratio of cash to credit lines and face higher costs on their lines. Time-series analyses show that firms’ cash reserves rise in times of high aggregate volatility and in such times credit lines initiations fall, their spreads widen, and maturities shorten. Also consistent with the mechanism in the model, we find that exposure to undrawn credit lines increases bank-specific risks in times of high aggregate volatility.

84 citations

Posted Content
TL;DR: In this article, two of the more prominent credit scoring techniques, Z-Score and KMV's EDF models, are reviewed with respect to default probabilities in general and in particular to the infamous Enron and WorldCom debacles in particular.
Abstract: This paper discusses two of the primary motivating influences on the recent development/revisions of credit scoring models - the important implications of Basel II's proposed capital requirements on credit assets and the enormous amounts and rates of defaults and bankruptcies in the United States in 2001-2002. Two of the more prominent credit scoring techniques, our Z-Score and KMV's EDF models, are reviewed. Both models are assessed with respect to default probabilities in general and in particular to the infamous Enron and WorldCom debacles in particular. In order to be effective, these and other credit risk models should be utilized by firms with a sincere credit risk culture, observant of the fact that they are best used as an additional tool, not the sole decision making criteria, in the credit and security analyst process.

83 citations


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Performance
Metrics
No. of papers in the topic in previous years
YearPapers
20251
2023343
2022729
2021799
2020915
2019921