Stuart Turnbull - Academia.edu (original) (raw)

Papers by Stuart Turnbull

Canada-United States Law Journal, 1988

SSRN Electronic Journal, 2008

The paper examines three equity-based structural models to study the nonlinear relationship betwe... more The paper examines three equity-based structural models to study the nonlinear relationship between equity and credit default swap (CDS) prices. These models differ in the specification of the default barrier. With cross-firm CDS premia and equity information, we are able to estimate and compare the three models. We find that the stochastic barrier model performs better than the constant and uncertain barrier models in terms of both in-sample fit and out-of-sample forecasting of CDS premia. In addition, we demonstrate a linkage between the default barrier, jump intensity, and barrier volatility estimated from our models and firm-specific variables related to default risk, such as credit ratings, equity volatility, and leverage ratios.

The Journal of Finance, 1980

Page 1. THE JOURNAL OF FINANCE * VOL. XXXV, NO. 3 * JUNE 1980 The Journal of FINANCE VOL. XXXV JU... more Page 1. THE JOURNAL OF FINANCE * VOL. XXXV, NO. 3 * JUNE 1980 The Journal of FINANCE VOL. XXXV JUNE 1980 No. 3 Capital Asset Prices and the Temporal Resolution of Uncertainty* LARRY G. EPSTEIN and STUART M. TURNBULL I. Introduction ...

Synthetic CDOs

We present the market standard pricing model for marking credit default swap positions to market.... more We present the market standard pricing model for marking credit default swap positions to market. Our aim is first to explain why credit default swaps require a valuation model, and then to explain the standard model–the one most widely used in the market. In the process ...

The Journal of Risk, 2020

Co-ordinating land-use and transport planning continues to be a challenge facing professionals. T... more Co-ordinating land-use and transport planning continues to be a challenge facing professionals. The focus on master-planning and regeneration can place significant requirements on transport systems that are already operating close to, or at, capacity. The interaction with the statutory environment of development plans, policies and legal agreements has given professionals a major challenge in finding mechanisms and methodologies that support Government's objectives, while safeguarding the operation of the network. The Scottish Government has recognised the need to integrate the transport appraisal process more actively within the Development Planning process, and has issued guidance for consultation to assist policy makers and practitioners alike. While Governmental, legal and other process will differ across Europe, this paper will focus on three levels of activity that have common application: - alignment of plans and policies; - development of analytical process; and, - deliv...

Journal of Asset Management, 2020

We introduce a new class of discrete-time models that explicitly recognize the impact of news arr... more We introduce a new class of discrete-time models that explicitly recognize the impact of news arrival. The distribution of returns is governed by three factors: dynamics volatility and two Poisson compound processes, one for negative news and one for positive news. We show in a model-free environment that the arrival of negative and positive news has an asymmetric effect on oil futures returns and volatility. Using the first 12 futures contracts, our empirical results confirm that the effects of negative and positive news are described by different processes, a significant proportion of volatility is explained by news arrival and the impact of negative news is larger than that of positive news.

Journal of Risk and Financial Management, 2018

This paper described a theory of capital allocation for decentralized businesses, taking into acc... more This paper described a theory of capital allocation for decentralized businesses, taking into account the costs associated with risk capital. We derive an adjusted present value expression for making investment decisions, that incorporates the time varying profile of risk capital. We discuss the implications for business performance measurement.

The Journal of Credit Risk, 2017

Many financial institutions provide loans to secondary firms, whose economic survival depends on ... more Many financial institutions provide loans to secondary firms, whose economic survival depends on the economic condition of primary firms. Even if loans from primary firms are not held in the loan portfolio, the financial distress of primary firms can adversely affect the loan portfolio of a financial institution. This paper describes a simple model that can be used for risk management. Our model directly incorporates the dependence of the conditional probability of default and loss given default of secondary firms on primary firms. Two simple examples show that failure to account for such dependence can result in the value-at-risk and the expected shortfall being greatly underestimated.

The Journal of Risk, 1999

ABSTRACT

The Journal of Credit Risk, 2005

In this paper we describe a methodology for deriving the upper and lower profit and loss (P&L) bo... more In this paper we describe a methodology for deriving the upper and lower profit and loss (P&L) bounds in the presence of counterparty risk that does not rely on either structural or reduced form credit models. The methodology provides practitioners and regulators with a practical tool to estimate the impact on P&L of the two facets of counterparty risk: failure to perform and mark-to-market exposure. We show that for many applications, the bounds are tight and the credit worthiness of counterparties can have a major impact on the P&L.

The Journal of Credit Risk, 2009

This paper discusses the di¢ cult challenges of measuring and managing risk of innovative …nancia... more This paper discusses the di¢ cult challenges of measuring and managing risk of innovative …nancial products. To measure risk requires the ability to …rst identify the di¤erent dimensions of risk that an innovation introduces. The list of possible factors is long: model restrictions, illiquidity, limited ability to test models, product design, counterparty risk and related managerial issues. For measuring some of the di¤erent dimensions of risk the implications of limited available data must be addressed. Given the uncertainty about model valuation, how can risk managers respond? All parties within a company-senior management, traders and risk managers-have important roles to play in assessing, measuring and managing risk of new products.

Annual Review of Financial Economics, 2014

This review provides formal definitions of the terms credit value adjustment (CVA) and debt value... more This review provides formal definitions of the terms credit value adjustment (CVA) and debt value adjustment (DVA). Estimating these quantities requires modeling the probabilities of default and the loss given default, recognizing the dependence structure among all these inputs. In practice, marginal distributions are used and a copula function assumed. Although it has long been known that different copula functions can produce very different price estimates, keeping marginal distributions constant, there is little empirical evidence about the appropriate form of function to use for modeling default dependence. This review discusses the use of collateral for risk mitigation and its effects on CVA. Regulators have argued that standardized contracts should be cleared through central counterparties (CCPs). However, there are arguments against CCPs.

The Journal of Derivatives, 1995

ABSTRACT A European interest rate digital call (put) option pays one dollar at maturity if the pr... more ABSTRACT A European interest rate digital call (put) option pays one dollar at maturity if the prespecified reference interest rate is above (below) the strike level, and zero otherwise. A European range digital option pays one dollar if the prespecified reference interest rate lies within a specified range at maturity, and zero otherwise.A range note is a form of floating-rate note. The payment at the end of each period is defined to equal the number of days the reference interest rate lies within a specified range times an interest rate specified at the start of each period.Taking the initial term structure to be exogenous, closed-form solutions are derived for European interest rate digital options, digital range options, and range notes.

Encyclopedia of Quantitative Finance, 2010

... CrossRef. 5 Matten, C. (2000). Managing Bank Capital. John Wiley & Sons, New York. 6 McNe... more ... CrossRef. 5 Matten, C. (2000). Managing Bank Capital. John Wiley & Sons, New York. 6 McNeil, A. Frey, R. & Embrechts, P. (2005). Quantitative Risk Management, Princeton University Press, NJ. 7 Merton, RC (1993). Operation ...

Applied Mathematical Finance, 1994

ABSTRACT The paper describes a framework for delta and gamma hedging an interest rate portfolio u... more ABSTRACT The paper describes a framework for delta and gamma hedging an interest rate portfolio using a multifactor form of the Heath et al. (1992) model. A formal description of bucket hedging is given along with a discussion of some of the issues surrounding the choice of bucket lengths. Given that a small number of factors can describe the evolution of the term structure, the bucket deltas are defined in terms of these factors. The hedging of corporate bonds is also addressed.

The University of Toronto Law Journal, 1980

SSRN Electronic Journal, 2011

Observable covariates are useful for predicting default, but several …ndings question their value... more Observable covariates are useful for predicting default, but several …ndings question their value for explaining credit spreads. We introduce a discrete time no-arbitrage model with observable covariates, which allows for a closed form solution for the value of credit default swaps (CDS). The default intensity is a quadratic function of the covariates, speci…ed such that it is always positive. The model yields economically sensible results in terms of …t and the economic impact of the covariates. Macroeconomic and …rm-speci…c information can explain most of the variation in CDS spreads over time and across …rms, even with a parsimonious speci…cation. These …ndings resolve the existing disconnect in the literature regarding the value of observable covariates for credit risk pricing and default prediction. Our results also suggest that although CDS spreads are highly auto-correlated, analyzing spread levels may be preferable to analyzing di¤erences for daily CDS data.

The Journal of Derivatives, 2008