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dc.contributor.authorAkyildirim, Erdinc
dc.contributor.authorHekimoglu, A.A.
dc.contributor.authorSensoy, A.
dc.contributor.authorFabozzi, F.J.
dc.date.accessioned2023-03-22T14:54:55Z
dc.date.accessioned2023-03-29T11:07:43Z
dc.date.available2023-03-22T14:54:55Z
dc.date.available2023-03-29T11:07:43Z
dc.date.issued2023-03
dc.identifier.citationAkyildirim E, Hekimoglu AA, Sensoy A et al (2023) Extending the Merton model with applications to credit value adjustment. Annals of Operations Research. 326: 27-65.en_US
dc.identifier.urihttp://hdl.handle.net/10454/19383
dc.descriptionYes
dc.description.abstractFollowing the global financial crisis, the measurement of counterparty credit risk has become an essential part of the Basel III accord with credit value adjustment being one of the most prominent components of this concept. In this study, we extend the Merton structural credit risk model for counterparty credit risk calculation in the context of calculating the credit value adjustment mainly by estimating the probability of default. We improve the Merton model in a variance-convoluted-gamma environment to include default dependence between counterparties through a linear factor decomposition framework. This allows one to tackle dependence through a systematic common component. Our set-up allows for easier, faster and more accurate fitting for the credit spread. Results confirm that use of the variance-gamma-convolution clearly solves the vanishing credit spread problem for short time-to-maturity or low leverage cases compared to a Brownian motion environment and its modifications.en_US
dc.description.sponsorshipAhmet Sensoy gratefully acknowledges support from Turkish Academy of Sciences under its Outstanding Young Scientist Award Programme (TUBA-GEBIP). Frank J. Fabozzi acknowledges the financial support from EDHEC Business School.
dc.language.isoenen_US
dc.rights© The Author(s), under exclusive licence to Springer Science+Business Media, LLC, part of Springer Nature 2023. This version of the article has been accepted for publication, after peer review (when applicable) and is subject to Springer Nature’s AM terms of use, but is not the Version of Record and does not reflect post-acceptance improvements, or any corrections. The Version of Record is available online at: https://doi.org/10.1007/s10479-023-05289-3.
dc.subjectFinance
dc.subjectStructural credit risk
dc.subjectMerton model
dc.subjectVariance-gamma process
dc.subjectCredit value adjustment
dc.titleExtending the Merton model with applications to credit value adjustmenten_US
dc.status.refereedYes
dc.date.Accepted07/03/2023
dc.date.application30/03/2023
dc.typeArticle
dc.type.versionAccepted manuscript
dc.identifier.doihttps://doi.org/10.1007/s10479-023-05289-3
dc.rights.licenseUnspecifieden_US
dc.date.updated2023-03-22T14:54:59Z
refterms.dateFOA2023-03-29T11:08:25Z
dc.openaccess.statusopenAccess


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