How to price recovery risk
How to price recovery risk

Choosing a skilled CLO manager
Roberto Liebscher and Thomas Mählmann argue that some managers are more skilled than others – and that skilled managers deliver higher returns from CLO equity tranches

What are a spread’s ingredients?
In established credit models, default risk explains only a small portion of credit spread. Bo Wang analyses the impact of other factors, including equity markets and interest rates

Filling out the credit curve
Takeaki Kariya uses a government bond pricing approach to analyse corporate credit risk

An end to bump and reval
Adjoint algorithmic differentiation can slash the computational time for valuation by three orders of magnitude. Luca Capriotti and Jacky Lee show how it can be applied to credit

The power of two
When modelling credit risk from volatility, two factors are better than one

Putting low rates under a microscope
Cho-Hoi Hui suggests using a double square-root process with a non-linear drift term to capture recent near-zero interest rates more accurately when pricing corporate bonds

Taking coupons into account
Sara Cecchetti and Antonio Di Cesare show that bond yields and spreads are not good indicators of default risk – and that coupon rate is an important driver of the yield curve

Keeping in sync with sinking bonds
Jan-Frederik Mai and Marc Wittlinger describe a technique for pricing bonds that have a random sinking fund feature without the need to resort to time-consuming Monte Carlo algorithms

What rates really mean to credit
Credit portfolio managers should take better account of the correlation between rates and credit

Measuring portfolio counterparty risk
Swaps referencing large credit portfolios present a particular problem when firms attempt to measure their counterparty risk. Agostino Capponi presents a model that could help

Unstirring cocos
Separating credit risk from the probability of conversion is the key to pricing cocos, argue Damiano Brigo, João Garcia and Nicola Pede

Tackling counterparty risk with CDS
A chain of credit default swaps may be an effective way to hedge out counterparty risk in a securitisation or covered bond

A model of corporate behaviour
Haejun Jeon and Michi Nishihara propose a credit risk model based on a borrower's option to invest. It helps explain the small gap between high yield and investment grade spreads

Getting the measure of reg cap relief
Credit default swap spreads reflect not only expected losses but also the value of regulatory cap relief under Basel 2.5 and Basel III

Finding inefficiencies in iTraxx
Credit derivative indices are big and liquid. But detailed analysis of their historical performance shows they are not always efficient. By Davide Avino and Ogonna Nneji

Credit default swaps stop fire sales
Companies with credit default swaps have more liquid bonds and tighter spreads than those that don’t because investors can hold their bonds after a downgrade

How to value a coco
Converting default risk into conversion risk provides a method for valuing contingent convertibles, according to Patrick Cheridito and Zhikai Xu  

When credit gets ahead of equity
Corporate bonds were regarded as lagging followers of equity markets. But Trace data shows that, in many cases, debt anticipates stock moves

In search of a grand unifying theory
Tomasz Bielecki, Areski Cousin, Stéphane Crépey and Alexander Herbertsson describe the construction of a model that aims to make credit correlation work bottom-up and top-down

Fine-tuning the momentum signal
Daniel Haesen, Patrick Houweling and Jeroen van Zundert describe an approach that slashes volatility and improves returns in momentum strategies for corporate bonds

CLOs win out in the crisis
Analysis shows that, as an alpha-generating asset class, CLO equity has an edge over hedge funds and private equity since the onset of the global financial crisis

Swiss Re’s $750m solvency trigger coco is much riskier than it seems
The new coco from Swiss Re pays 6.375% annually but the trigger is set in an unusual way. Jan De Spiegeleer, Jan Dhaene and Wim Schoutens look at the risk of investors losing out

Making a case for pre-funded bonds
They may not be commonly issued but collateralised coupon bonds should be more attractive to investors than zero coupon bonds