IDEAS home Printed from https://ideas.repec.org/a/eee/csdana/v56y2012i11p3276-3285.html
   My bibliography  Save this article

Robust analysis of default intensity

Author

Listed:
  • Bellini, Tiziano
  • Riani, Marco

Abstract

The problem of robust estimation and multivariate outlier detection of the term structure of default intensity is considered. Both the multivariate Vasicek and CIR models, embedding the Kalman filter algorithm in a forward search context, are used to estimate default intensity. The focus is not on the estimation of credit models including jumps, but on the automatic detection of masked multiple outliers in multivariate time series. Both simulated and real market credit spread time series are analyzed. In order to make inference on outliers, confidence envelopes which are virtually independent of the estimated parameters are introduced. The output is not only a unique default intensity term structure curve, as often used in the financial literature, but a robust confidence interval within which default intensity is likely to stay.

Suggested Citation

  • Bellini, Tiziano & Riani, Marco, 2012. "Robust analysis of default intensity," Computational Statistics & Data Analysis, Elsevier, vol. 56(11), pages 3276-3285.
    • Handle: RePEc:eee:csdana:v:56:y:2012:i:11:p:3276-3285
    DOI: 10.1016/j.csda.2011.03.007
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0167947311000983
    Download Restriction: Full text for ScienceDirect subscribers only.
    File URL: https://libkey.io/10.1016/j.csda.2011.03.007?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Riani Marco, 2004. "Extensions of the Forward Search to Time Series," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 8(2), pages 1-25, May.
    2. John C. Cox & Jonathan E. Ingersoll Jr. & Stephen A. Ross, 2005. "A Theory Of The Term Structure Of Interest Rates," World Scientific Book Chapters, in: Sudipto Bhattacharya & George M Constantinides (ed.), Theory Of Valuation, chapter 5, pages 129-164, World Scientific Publishing Co. Pte. Ltd..
    3. Marco Riani & Anthony C. Atkinson & Andrea Cerioli, 2009. "Finding an unknown number of multivariate outliers," Journal of the Royal Statistical Society Series B, Royal Statistical Society, vol. 71(2), pages 447-466, April.
    4. Duffie, Darrell & Singleton, Kenneth J, 1999. "Modeling Term Structures of Defaultable Bonds," The Review of Financial Studies, Society for Financial Studies, vol. 12(4), pages 687-720.
    5. Merton, Robert C, 1974. "On the Pricing of Corporate Debt: The Risk Structure of Interest Rates," Journal of Finance, American Finance Association, vol. 29(2), pages 449-470, May.
    6. Fuertes, Ana-Maria & Kalotychou, Elena, 2006. "Early warning systems for sovereign debt crises: The role of heterogeneity," Computational Statistics & Data Analysis, Elsevier, vol. 51(2), pages 1420-1441, November.
    7. Siem Jan Koopman & Neil Shephard & Jurgen A. Doornik, 1999. "Statistical algorithms for models in state space using SsfPack 2.2," Econometrics Journal, Royal Economic Society, vol. 2(1), pages 107-160.
    8. Vasicek, Oldrich, 1977. "An equilibrium characterization of the term structure," Journal of Financial Economics, Elsevier, vol. 5(2), pages 177-188, November.
    9. Vasicek, Oldrich Alfonso, 1977. "Abstract: An Equilibrium Characterization of the Term Structure," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 12(4), pages 627-627, November.
    10. Duan, Jin-Chuan & Simonato, Jean-Guy, 1999. "Estimating and Testing Exponential-Affine Term Structure Models by Kalman Filter," Review of Quantitative Finance and Accounting, Springer, vol. 13(2), pages 111-135, September.
    11. David Bolder, 2001. "Affine Term-Structure Models: Theory and Implementation," Staff Working Papers 01-15, Bank of Canada.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Bellini, Tiziano, 2013. "Integrated bank risk modeling: A bottom-up statistical framework," European Journal of Operational Research, Elsevier, vol. 230(2), pages 385-398.
    2. Bellini, Tiziano, 2012. "Forward search outlier detection in data envelopment analysis," European Journal of Operational Research, Elsevier, vol. 216(1), pages 200-207.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. João Nunes, 2011. "American options and callable bonds under stochastic interest rates and endogenous bankruptcy," Review of Derivatives Research, Springer, vol. 14(3), pages 283-332, October.
    2. Zhou, Chunsheng, 2001. "The term structure of credit spreads with jump risk," Journal of Banking & Finance, Elsevier, vol. 25(11), pages 2015-2040, November.
    3. Duffie, Darrell, 2005. "Credit risk modeling with affine processes," Journal of Banking & Finance, Elsevier, vol. 29(11), pages 2751-2802, November.
    4. Samuel Chege Maina, 2011. "Credit Risk Modelling in Markovian HJM Term Structure Class of Models with Stochastic Volatility," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 1-2011.
    5. Suresh M. Sundaresan, 2000. "Continuous‐Time Methods in Finance: A Review and an Assessment," Journal of Finance, American Finance Association, vol. 55(4), pages 1569-1622, August.
    6. Liu, Jun & Longstaff, Francis A. & Mandell, Ravit E., 2000. "The Market Price of Credit Risk: An Empirical Analysis of Interest Rate Swap Spreads," University of California at Los Angeles, Anderson Graduate School of Management qt0zw4f9w6, Anderson Graduate School of Management, UCLA.
    7. Duffie, Darrell, 2003. "Intertemporal asset pricing theory," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 11, pages 639-742, Elsevier.
    8. Cheikh Mbaye & Frédéric Vrins, 2022. "Affine term structure models: A time‐change approach with perfect fit to market curves," Mathematical Finance, Wiley Blackwell, vol. 32(2), pages 678-724, April.
    9. Lee, Jin-Ping & Yu, Min-Teh, 2007. "Valuation of catastrophe reinsurance with catastrophe bonds," Insurance: Mathematics and Economics, Elsevier, vol. 41(2), pages 264-278, September.
    10. Gatzert, Nadine & Martin, Michael, 2012. "Quantifying credit and market risk under Solvency II: Standard approach versus internal model," Insurance: Mathematics and Economics, Elsevier, vol. 51(3), pages 649-666.
    11. repec:wyi:journl:002109 is not listed on IDEAS
    12. Qiang Dai & Kenneth Singleton, 2003. "Term Structure Dynamics in Theory and Reality," The Review of Financial Studies, Society for Financial Studies, vol. 16(3), pages 631-678, July.
    13. Jonathan A. Batten & Karren Lee-Hwei Khaw & Martin R. Young, 2014. "Convertible Bond Pricing Models," Journal of Economic Surveys, Wiley Blackwell, vol. 28(5), pages 775-803, December.
    14. Samuel Chege Maina, 2011. "Credit Risk Modelling in Markovian HJM Term Structure Class of Models with Stochastic Volatility," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 5, July-Dece.
    15. Chi-Fai Lo & Cho-Hoi Hui, 2016. "Pricing Corporate Bonds With Interest Rates Following Double Square-root Process," Working Papers 112016, Hong Kong Institute for Monetary Research.
    16. Radu Tunaru, 2015. "Model Risk in Financial Markets:From Financial Engineering to Risk Management," World Scientific Books, World Scientific Publishing Co. Pte. Ltd., number 9524.
    17. Yalin Gündüz & Marliese Uhrig-Homburg, 2014. "Does modeling framework matter? A comparative study of structural and reduced-form models," Review of Derivatives Research, Springer, vol. 17(1), pages 39-78, April.
    18. Davide Radi & Vu Phuong Hoang & Gabriele Torri & Hana Dvořáčková, 2021. "A revised version of the Cathcart & El-Jahel model and its application to CDS market," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 44(2), pages 669-705, December.
    19. Mark Broadie & Jerome B. Detemple, 2004. "ANNIVERSARY ARTICLE: Option Pricing: Valuation Models and Applications," Management Science, INFORMS, vol. 50(9), pages 1145-1177, September.
    20. Ramaprasad Bhar, 2010. "Stochastic Filtering with Applications in Finance," World Scientific Books, World Scientific Publishing Co. Pte. Ltd., number 7736.
    21. Sara Cecchetti, 2019. "A Quantitative Analysis of Risk Premia in the Corporate Bond Market," JRFM, MDPI, vol. 13(1), pages 1-33, December.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:csdana:v:56:y:2012:i:11:p:3276-3285. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/csda .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.