Pricing tranched credit products with generalized multifactor models

The market for tranched credit products (CDOs, Itraxx tranches) is one of the fastest growing segments in the credit derivatives industry. However, some assumptions underlying the standard Gaussian onefactor pricing model (homogeneity, single factor, Normality), which is the pricing standard widely used in the industry, are probably too restrictive. In this paper we generalize the standard model by means of a two by two model (two factors and two asset classes). We assume two driving factors (business cycle and industry) with independent tStudent distributions, respectively, and we allow the model to distinguish among portfolio assets classes. In order to illustrate the estimation of the parameters of the model, an empirical application with Moody's data is also included.

On the compensation for illiquidity in sovereign credit markets

This article analyzes the role of liquidity in the sovereign credit default swap (CDS) market. We employ a continuous-time specification to incorporate illiquidity as an additional pricing factor of default swap contracts for the most developed economies. The illiquidity discount process is identified as compensation to investors for the risk of unwinding their positions when trading in the less liquid part of the curve, and the information about illiquidity is directly extracted from the term structure of sovereign CDS spreads. Our empirical findings reveal that a positive time-varying illiquidity premium is embedded in sovereign default swaps. These risk premia exhibit substantial comovement across countries. Only unidirectional causality from default to liquidity is detected for the overall market.We are exceptionally grateful to Jonatan Groba for his valuable comments and suggestions. J.A. Lafuente acknowledges financial support from the Spanish Ministry of Economy and Competitiveness through grant ECO2012-31941, the Generalitat Valenciana through grant PrometeoII/2013/015 and the University Jaume I through grant P1.1A2012-09. P. Serrano acknowl- edges financial support from the Spanish Ministry of Economy and Competitiveness through grant ECO2012-34268 and from Junta de Andalucía project P12-SEJ-1733

On the compensation for illiquidity in sovereign credit markets

This article analyzes the role of liquidity in the sovereign credit default swap (CDS) market. We employ a continuous-time specification to incorporate illiquidity as an additional pricing factor of default swap contracts for the most developed economies. The illiquidity discount process is identified as compensation to investors for the risk of unwinding their positions when trading in the less liquid part of the curve, and the information about illiquidity is directly extracted from the term structure of sovereign CDS spreads. Our empirical findings reveal that a positive time-varying illiquidity premium is embedded in sovereign default swaps. These risk premia exhibit substantial comovement across countries. Only unidirectional causality from default toliquidity is detected for the overall marketJ. Groba acknowledges financial support from the Spanish Government project ECO2011-28134. J.A. Lafuente acknowledges financial support from the Ramon Areces Foundation, the Spanish Ministry of Education through grant ECO2012-31941, the Generalitat Valenciana through grant Prometeo II/2013/015 and the University Jaume I through grant P1.1A2012-09. P. Serrano acknowledges financial support from the Ministry of Economics and Competitiveness through grant ECO2012-3426

Valuation and modeling of EQ-5D-5L health states using a hybrid approach

Background: The EQ-5D instrument is the most widely used preference-based health-related quality of life questionnaire in cost-effectiveness analysis of health care technologies. Recently, a version called EQ-5D-5L with 5 levels on each dimension was developed. This manuscript explores the performance of a hybrid approach for the modeling of EQ-5D-5L valuation data. Methods: Two elicitation techniques, the composite time trade-off, and discrete choice experiments, were applied to a sample of the Spanish population (n=1000) using a computer-based questionnaire. The sampling process consisted of 2 stages: stratified sampling of geographic area, followed by systematic sampling in each area. A hybrid regression model combining composite time trade-off and discrete choice data was used to estimate the potential value sets using main effects as starting point. The comparison between the models was performed using the criteria of logical consistency, goodness of fit, and parsimony. Results: Twenty-seven participants from the 1000 were removed following the exclusion criteria. The best-fitted model included 2 significant interaction terms but resulted in marginal improvements in model fit compared to the main effects model. We therefore selected the model results with main effects as a potential value set for this methodological study, based on the parsimony criteria. The results showed that the main effects hybrid model was consistent, with a range of utility values between 1 and -0.224. Conclusion: This paper shows the feasibility of using a hybrid approach to estimate a value set for EQ-5D-5L valuation data.</p

Digitizing the Herbarium of the I.E.S. Padre Luis Coloma of Jerez de la Frontera (Cádiz, SW Spain)

Hoy día las tecnologías avanzan a ritmos insospechados, y el acceso a la información es cada vez más fácil y rápido. Aunque es cierto, que mucha información todavía se encuentra en un formato inaccesible o desconocida para muchos, aunque cada vez son las menos. En esta comunicación vamos a explicar el proceso de digitalización del Herbario del IES Padre Luis Coloma de Jerez de la Frontera que data en sus inicios del año 1875 en adelante. Tras el acuerdo inicial con los propietarios del herbario, procedimos a trazar unas directrices para su correcta indexación y fotografiado. Por tanto, recopilamos la información de uno de los apuntes bibliográficos para confeccionar una base de datos primaria. Esto nos ahorró bastante trabajo pues era una recopilación de todas las etiquetas del herbario en sus inicios. Más adelante procedimos a crear un pequeño script web junto a una base de datos MySQL para ir editando datos y haciendo correcciones sobre la marcha del proceso de fotografiado. En este proceso se obtuvieron 6 fotos, una de pliego completo sin etiqueta, 3 de detalles importantes para su identificación y la propia etiqueta en su parte anterior y posterior. Finalmente recopilamos toda esta información, anotamos irregularidades y creamos una página web donde se pueden ver todas las fotos, e información de las etiquetas, junto a la posible información actualizada procedentes de la base de datos de la Flora Iberica. Además procedimos a la realización de un diseño adaptado a móvil y tablets con lo que cualquier persona desde su computadora o desde su propio móvil o tablet puede consultar la información y visualizar las fotos de los aproximádamente más de mil pliegos que componen este herbario.Technologies grows to unexpected rhythms, and access to information is becoming easier and faster. While it is true that a lot of information is still in an inaccessible format or unknown to many, but is increasingly less. In this paper we will explain the process of digitizing the Herbarium of IES Padre Luis Coloma from Jerez (Cádiz, SW Spain) dated in the beginning of 1875 onwards. After the initial agreement with the owners of the herbarium, we proceeded to draw up guidelines for proper indexing and photographed. Thus, we collect the information from one of the bibliographic notes for making a primary database. This saved us a lot of work as it was a compilation of all the labels of the herbarium at the beginning. Later we proceeded to create a small web script next to a MySQL database to go edit data and make corrections on the fly shooting process. In this process were obtained 6 photos, a complete sheet of unlabeled 3 important details to identify and label their own front and back. Finally we collect all this information, we noted irregularities and create a web page where you can see all the pictures, and information on their labels, along with the possible date information from the database of the Flora Iberica. Furthermore proceeded to carry out a design adapted to mobile and tablets with anyone from your computer or from your own phone or tablet can see information and view pictures of the estimated over a thousand sheets that comprise this herbarium

Determinants of the multiple-term structures from interbank rates

The classic relationship between deposit rates and interest rate derivatives has been fractured since August 2007. Uncertainty in the interbank money market has increased the risk premia differentials on unsecured deposits rates of different tenors, such as Euribor, leading to a new pricing framework of interest rate derivatives based on multiple curves. This article analyzes the economic determinants of this new multi-curve framework. We employ basis swap (BS) spreads &-floating-to-floating interest rate swaps- as instruments for extracting the interest rate curvedifferentials. Our results show that the multi-curve framework mirrors the standard single-curve setting in terms of level, slope and curvature factors. The level factor captures 90% of the total variation in the curves, and this factor significantly covaries with a proxy for systemic risk. Moreover, the curve residuals are significantly correlated with interbank liquidity. Our empirical findings also show unidirectional causality running from risk (and liquidity) to level (and noise) factors

Depth of almost strictly sign regular matrices

The concept of depth of an almost strictly sign regular matrix is introduced and used to simplify some algorithmic characterizations of these matrices