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1 In the setting of ''affine'' jump-diffusion state processes, this paper provides an analytical treatment of a class of transforms, including various Laplace and Fourier transforms as special cases, that allow an analytical treatment of a range of valuation and econometric problems. Example applications include fixed-income pricing models, with a role for(More)
This article presents convenient reduced-form models of the valuation of contingent claims subject to default risk, focusing on applications to the term structure of interest rates for corporate or sovereign bonds. Examples include the valuation of a credit-spread option. This article presents a new approach to modeling term structures of bonds and other(More)
Though linear projections of returns on the slope of the yield curve have contradicted the implications of the traditional " expectations theory, " we show that these findings are not puzzling relative to a large class of richer dynamic term structure models. Specifically, we are able to match all of the key empirical findings reported by Fama and Bliss and(More)
extensive discussions; Andrew Ang, Mark Ferguson, and Yael Hochberg for their thoughtful and careful research assistance, three referees for their constructive comments, and the Financial Research Initiative and Gifford Fong Associates Fund of the Graduate School of Business at Stanford University for financial support.
This paper explores the nature of default arrival and recovery implicit in the term structures of sovereign CDS spreads. We argue that term structures of spreads reveal not only the arrival rates of credit events (λ Q), but also the loss rates given credit events. Applying our framework to Mexico, Turkey, and Korea, we show that a single-factor model with λ(More)
  • Pan, Singleton, Paulo Atkeson, Engelbert Cacella, Sebastian Dockner, Robert Edwards +14 others
  • 2011
I s sovereign credit risk primarily a country-specific type of risk? Or is sovereign credit driven primarily by global macroeconomic forces external to the country? Understanding the nature of sovereign credit risk is of key importance given the large and rapidly increasing size of the sovereign debt markets. Furthermore, the nature of sovereign credit risk(More)
This paper quantifies how variation in real economic activity and inflation in the U.S. influenced the market prices of level, slope, and curvature risks in U.S. Treasury markets. We develop a novel arbitrage-free dynamic term structure model in which bond investment decisions are influenced by real output and inflation risks that are unspanned by(More)