On the Way to Recovery: A Nonparametric Bias Free Estimation of Recovery Rate Densities

In this paper we analyse recovery rates on defaulted bonds using the Standard and Poor’s/PMD database for the years 1981-1999. Due to the specific nature of the data (observations lie within 0 and 1), we must rely on nonstandard econometric techniques. The recovery rate density is estimated nonparametrically using a beta kernel method. This method is free of boundary bias, and Monte Carlo comparison with competing nonparametric estimators show that the beta kernel density estimator is particularly well suited for density estimation on the unit interval. We challenge the usual market practice to model parametrically recovery rates using a beta distribution calibrated on the empirical mean and variance. This assumption is unable to replicate multimodal distributions or concentration of data at total recovery and total loss. We evaluate the impact of choosing the beta distribution on the estimation of credit Value-at-Risk.default, recovery, kernel estimation, credit risk

Times-To-Default:Life Cycle, Global and Industry Cycle Impact

This paper studies times-to-default of individual firms across risk classes. Using Standard & Poor’s ratings database we investigate common drivers of default probabilities and address two shortcomings of many papers in the credit literature. First, we identify relevant determinants of default intensities using business cycle and credit market proxies in addition to financial markets indicators, and reveal the time-span of their impacts. We show that misspecifications of financial based factor models are largely corrected by non financial information. Second, we show that past economic conditions are of prime importance in explaining probability changes: current shocks and long term trends jointly determine default probabilities. Finally, we exhibit industry contagion indicators which might be helpful to capture leading and persistency patterns of the default cycle.censored durations; proportional hazard; business cycle; credit cycle; default determinants; default prediction

Liquidity and Credit Risk

We develop a simple binomial model of liquidity and credit risk in which a bondholder has the option to time the sale of his security, given a distribution of potential buyers, bids and liquidity shocks. We examine first the case without default and find that our model predicts decreasing term structures of liquidity premia, consistent with empirical evidence. In the default risky case, we find that liquidity spreads are positively related to credit risk. Using a sample of US corporate bonds, we find support for the time to maturity effect and the positive correlation between credit and liquidity spreads.

An Investigation of Time Consistency for Subjective Discontinued Utility

A well-known common agreement in decision theory is that only exponential decision makers are time consistent i.e. with the mere passage of time, future choices must not contradict the initial choice. Building on this result, a large range of works has studied time inconsistency as a direct application of hyperbolic discounting. These articles share the common objective time assumption under which decision makers have a perfect perception of future periods. This paper firstly highlights that, when no further condition than separability is mentioned, any discount mechanism is compatible with time consistency. Then, we investigate time consistency assuming that individual time perception may be submitted to time distortion. In particular, an axiomatic discounting model called Subjective Discounted Utility (SDU) is provided to illustrate how hyperbolic decision makers may be time consistent

Modulating charge density and inelastic optical response in graphene by atmospheric pressure localized intercalation through wrinkles

The intercalation of an oxide barrier between graphene and its metallic substrate for chem- ical vapor deposition is a contamination-free alternative to the transfer of graphene to dielectric supports, usually needed for the realization of electronic devices. Low-cost pro- cesses, especially at atmospheric pressure, are desirable but whether they are achievable remains an open question. Combining complementary microscopic analysis, providing structural, electronic, vibrational, and chemical information, we demonstrate the spontaneous reactive intercalation of 1.5 nm-thick oxide ribbons between graphene and an iridium substrate, at atmospheric pressure and room temperature. We discover that oxygen-containing molecules needed for forming the ribbons are supplied through the graphene wrinkles, which act as tunnels for the efficient diffusion of molecules entering their free end. The intercalated oxide ribbons are found to modify the graphene-support interaction, leading to the formation of quasi-free-standing high quality graphene whose charge density is modulated in few 10-100 nm-wide ribbons by a few 10^12 cm-2, where the inelastic optical response is changed, due to a softening of vibrational modes - red-shifts of Raman G and 2D bands by 6 and 10 cm-1, respectively.Comment: Carbon (2013) available onlin

Liquidity and credit risk

We develop a simple binomial model of liquidity and credit risk in which a bondholder has the option to time the sale of his security, given a distribution of potential buyers, bids and liquidity shocks. We examine as a benchmark the case without default and find that our model predicts a decreasing term structure of liquidity premia, in accordance with the empirical findings of AMIHUD and MENDELSON (1990). Then, we study the default risky case and show that credit risk influences liquidity spreads in a non-trivial way. We find that liquidity spreads are an increasing function of the volatility of the firm's assets and leverage - the key determinants of credit risk. Furthermore we show that bondholders are more likely to sell their holdings voluntarily when bond maturity is distant and when default becomes more probable. Finally, in a sample of US corporate bonds, we find support for the time to maturity effect and the positive correlation between credit and liquidity risks

Energy Localization in Periodic Structures: Application to Centrifugal Pendulum Vibration Absorber

International audienceIn this paper we study the non-linear dynamic of centrifugal pendulum vibration absorbers (CPVA), and we pay a special a ention to localized state solutions. e prediction of such states of vibration, and their stability, is of particular importance because they can lead to inefficient behavior for the CPVA and/or unforeseen stress levels. Using an approximated equation for the pendulums dynamics, we derive initial conditions to put the system in localized states. Following an analytic study of the non-linear normal mode of the system, the resolution of the approximated equation is carried out in the frequency domain using the Harmonic Balance Method and the Asymptotic Numeric Method. For sufficiently low inertia ratio, we show that the system can possess stable localized states

Nonparametric Methods and Option Pricing

Nous survolons la littérature de l'estimation non-paramétrique de modèles de titres dérivés. En particulier, nous analysons des options sur actions en partant d'une approche qui n'impose pas de restrictions théoriques, telles des restrictions d'arbitrage, et qui est donc purement statistique. Par la suite nous présentons des méthodes qui prennent avantage des restrictions a priori fournies par la théorie.In this paper, we survey some of the recent nonparametric estimation methods which were developed to price derivative contracts. We focus on equity options and start with a so-called model-free approach which incolves very little financial theory. Next we discuss nonparametric and semi-parametric methods of option pricing and illustrate the different approaches