Deriving Implied Risk-Free Interest Rates from Bond and CDS Quotes: a Model-Independent Approach
We propose a market-consistent approach to the definition and construction of the implied term structure of the risk-free interest rates which are model-independent with respect to the choice of the fitting method. The main idea consists of the simultaneous fitting of the credit default swap (CDS) and the defaultable bond quotes where the theoretical prices are calculated in the framework of the reduced-form modelling of credit risk under standard assumptions. We obtain not only the implied risk-free zero-coupon yield curve but also the implied issuer-specific hazard rate curves. Prior to fitting, we perform a selection of bond issues and issuers. Next, we check for data consistency via arbitrage-like reasoning. Typically, the initial data needs a consistency adjustment, namely `artificial' widening of the observed bid-ask spreads for the selected financial instruments. We construct feasibility bands representing achievable precision of the fitting procedure depending on maturity. Then we apply this methodology to determine the term structure of the risk-free rates for the euro zone. This generic approach for the calculation of the risk-free reference rates in the euro zone can be helpful for the purposes of insurers and pension funds. In particular, the relevant term structure can be used in the assessment of technical provisions as requested in Article 77 of the Solvency II Level 1 text.
This paper reviews difficulties concerning a development of single-name CDS price (spread) dynamics model for the purpose of determination of margin requirements. It also discusses a possibility to construct such a model using information about respective equity prices and option implied volatilities. Finally, it presents the basic step towards the former idea demonstrating results for the CDS written on Gazprom senior debt.
The paper presents a review of stochastic framework for term structure modeling and shows comparative advantages of commonly used techniques. The main application of the research is coherent modeling of credit and interest rate risk for Euro zone issuers.
Today no one is surprised by the words traditional securitization. In the article an author considers one type of securitization, synthetic one. Without dwelling on the basic structures and concepts, the article describes the most interesting structure of synthetic securitization.
synthetic securitization, reference portfolio, pool of assets, structure of the transaction, Synthetic structure, Credit default swaps, credit protection, Tranche, Subordination, Credit enhancement
Smoking is a problem, bringing signifi cant social and economic costs to Russiansociety. However, ratifi cation of the World health organization Framework conventionon tobacco control makes it possible to improve Russian legislation accordingto the international standards. So, I describe some measures that should be taken bythe Russian authorities in the nearest future, and I examine their effi ciency. By studyingthe international evidence I analyze the impact of the smoke-free areas, advertisementand sponsorship bans, tax increases, etc. on the prevalence of smoking, cigaretteconsumption and some other indicators. I also investigate the obstacles confrontingthe Russian authorities when they introduce new policy measures and the public attitudetowards these measures. I conclude that there is a number of easy-to-implementanti-smoking activities that need no fi nancial resources but only a political will.
One of the most important indicators of company's success is the increase of its value. The article investigates traditional methods of company's value assessment and the evidence that the application of these methods is incorrect in the new stage of economy. So it is necessary to create a new method of valuation based on the new main sources of company's success that is its intellectual capital.