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The Journal of Fixed Income

The Journal of Fixed Income

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Primary Article

A Simple Exponential Model for Dependent Defaults

Kay Giesecke
The Journal of Fixed Income Winter 2003, 13 (3) 74-83; DOI: https://doi.org/10.3905/jfi.2003.319362
Kay Giesecke
A visiting assistant professor of operations research at the School of Operations Research and Industrial Engineering at Cornell University in Ithaca, NY.
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  • For correspondence: giesecke@orie.cornell.edu
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Abstract

A thorough understanding of the joint default behavior of credit-risky securities is essential for credit risk measurement as well as the valuation of many credit derivatives and collateralized debt obligations. A simple and tractable intensity-based model predicts correlated defaults in which unpredictable default arrival times are jointly exponentially distributed. All relevant results are given in closed form, so the model can be easily implemented. The efficient simulation of dependent default times for pricing and risk management purposes is straightforward as well. Parameter calibration relies on market data as well as data from the rating agencies and credit risk management solutions.

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The Journal of Fixed Income
Vol. 13, Issue 3
Winter 2003
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A Simple Exponential Model for Dependent Defaults
Kay Giesecke
The Journal of Fixed Income Dec 2003, 13 (3) 74-83; DOI: 10.3905/jfi.2003.319362

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A Simple Exponential Model for Dependent Defaults
Kay Giesecke
The Journal of Fixed Income Dec 2003, 13 (3) 74-83; DOI: 10.3905/jfi.2003.319362
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  • A Simple Model of Correlated Defaults with Application to Repo Portfolios
  • Specification Risk and Calibration Effects of a Multifactor Credit Portfolio Model
  • Estimating the Joint Probability of Default Using Credit * Default Swap and Bond Data
  • Equity Risk, Credit Risk, Default Correlation, and Corporate Sustainability
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  • A Model for Convexity-Based Cross-Hedges with Treasury Futures
  • The Effect of Credit Ratings on Credit Default Swap Spreads and Credit Spreads
  • Using Credit Derivatives to Compute Marketwide Default Probability Term Structures
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