Comparing possible proxies of corporate bond liquidity

We consider eight different proxies (issued amount, coupon, listed, age, missing prices, yield volatility, number of contributors and yield dispersion) to measure corporate bond liquidity and use a five-variable model to control for interest rate risk, credit risk, maturity, rating and currency differences between bonds. The null hypothesis that liquidity risk is not priced in our data set of euro corporate bonds is rejected for seven out of eight liquidity proxies. We find significant liquidity premia, ranging from 9 to 24 basis points. A comparison test between liquidity proxies shows limited differences between the proxies.euro market;corporate bonds;liquidity;Fama-French model

Pricing default swaps: empirical evidence

In this paper we compare market prices of credit default swaps with model prices. We show that a simple reduced form model with a constant recovery rate outperforms the market practice of directly comparing bonds' credit spreads to default swap premiums. We find that the model works well for investment grade credit default swaps, but only if we use swap or repo rates as proxy for default-free interest rates. This indicates that the government curve is no longer seen as the reference default-free curve. We also show that the model is insensitive to the value of the assumed recovery ratecredit default swaps;credit risk;default risk;recovery rates;reduced form models

An Empirical Comparison of Default Swap Pricing Models

Abstract: In this paper we compare market prices of credit default swaps with model prices. We show that a simple reduced form model with a constant recovery rate outperforms the market practice of directly comparing bonds' credit spreads to default swap premiums. We find that the model works well for investment grade credit default swaps, but only if we use swap or repo rates as proxy for default-free interest rates. This indicates that the government curve is no longer seen as the reference default-free curve. We also show that the model is insensitive to the value of the assumed recovery rate. Keywords: credit default swaps, credit derivatives, credit risk, default risk, default-free interest ratescredit default swaps;credit risk;default risk;market prices;credit derivatives;default-free interest rates;empirical models

Pricing default swaps: empirical evidence

In this paper we compare market prices of credit default swaps with model prices. We show that a simple reduced form model with a constant recovery rate outperforms the market practice of directly comparing bonds' credit spreads to default swap premiums. We find that the model works well for investment grade credit default swaps, but only if we use swap or repo rates as proxy for default-free interest rates. This indicates that the government curve is no longer seen as the reference default-free curve. We also show that the model is insensitive to the value of the assumed recovery rat

Comparing possible proxies of corporate bond liquidity

We consider eight different proxies (issued amount, coupon, listed, age, missing prices, yield volatility, number of contributors and yield dispersion) to measure corporate bond liquidity and use a five-variable model to control for interest rate risk, credit risk, maturity, rating and currency differences between bonds. The null hypothesis that liquidity risk is not priced in our data set of euro corporate bonds is rejected for seven out of eight liquidity proxies. We find significant liquidity premia, ranging from 9 to 24 basis points. A comparison test between liquidity proxies shows limited differences between the proxies

An Empirical Comparison of Default Swap Pricing Models

Abstract: In this paper we compare market prices of credit default swaps with model prices. We show that a simple reduced form model with a constant recovery rate outperforms the market practice of directly comparing bonds' credit spreads to default swap premiums. We find that the model works well for investment grade credit default swaps, but only if we use swap or repo rates as proxy for default-free interest rates. This indicates that the government curve is no longer seen as the reference default-free curve. We also show that the model is insensitive to the value of the assumed recovery rate. Keywords: credit default swaps, credit derivatives, credit risk, default risk, default-free interest rate

Mixtures of tails in clustered automobile collision claims

Knowledge of the tail shape of claim distributions provides important actuarial information. This paper discusses how two techniques commonly used in assessing the most appropriate underlying distribution can be usefully combined. The maximum likelihood approach is theoretically appealing since it is preferable to many other estimators in the sense of best asymptotic normality. Likelihood based tests are, however, not always capable to discriminate among non-nested classes of distributions. Extremal value theory offers an attractive tool to overcome this problem. It shows that a much larger set of distributions is nested in their tails by the so-called tail parameter. This paper shows that both estimation strategies can be usefully combined when the data generating process is characterized by strong clustering in time and size. We find that the extreme value theory is a useful starting point in detecting the appropriate distribution class. Once that has been achieved, the likelihood-based EM-algorithm is proposed to capture the clustering phenomena. Clustering is particularly pervasive in actuarial data. An empirical application to a four-year data set of Dutch automobile collision claims is therefore used to illustrate the approach

Self-consistent simulation of quantum wires defined by local oxidation of Ga[Al]As heterostructures

We calculate the electronic width of quantum wires as a function of their lithographic width in analogy to experiments performed on nanostructures defined by local oxidation of Ga[Al]As heterostructures. Two--dimensional simulations of two parallel oxide lines on top of a Ga[Al]As heterostructure defining a quantum wire are carried out in the framework of Density Functional Theory in the Local Density Approximation and are found to be in agreement with measurements. Quantitative assessment of the influence of various experimental uncertainties is given. The most influential parameter turns out to be the oxide line depth, followed by its exact shape and the effect of background doping (in decreasing order).Comment: 5 pages, 6 figures; revised figures, clarified tex

The Light Hadron Mass Spectrum with Non-Perturbatively O(a) Improved Wilson Fermions

We compute the light hadron mass spectrum in quenched lattice QCD at $\beta = 6.0$ using the Sheikholeslami-Wohlert fermionic action. The calculation is done for several choices of the coefficient $c_{SW}$, including $c_{SW} = 0$ and the recently proposed optimal value $c_{SW} = 1.769$. We find that the individual masses change by up to 30\% under $O(a)$ improvement. The spectrum calculation suggests $c_{SW} \approx 1.4$ for the optimal value of the coefficient.Comment: 15 pages, uuencoded Z-compressed postscript file. Also available from http://www.desy.de/pub/preprints/desy/199

A Fast Parallel Poisson Solver on Irregular Domains Applied to Beam Dynamic Simulations

We discuss the scalable parallel solution of the Poisson equation within a Particle-In-Cell (PIC) code for the simulation of electron beams in particle accelerators of irregular shape. The problem is discretized by Finite Differences. Depending on the treatment of the Dirichlet boundary the resulting system of equations is symmetric or `mildly' nonsymmetric positive definite. In all cases, the system is solved by the preconditioned conjugate gradient algorithm with smoothed aggregation (SA) based algebraic multigrid (AMG) preconditioning. We investigate variants of the implementation of SA-AMG that lead to considerable improvements in the execution times. We demonstrate good scalability of the solver on distributed memory parallel processor with up to 2048 processors. We also compare our SAAMG-PCG solver with an FFT-based solver that is more commonly used for applications in beam dynamics