Series: IMF Working Papers
Author(s): Miguel Segoviano Basurto , and Raphael Espinoza
Publisher: INTERNATIONAL MONETARY FUND
Publication Date: 01 April 2011
Keywords: Price of risk, CDS, risk-neutral probability, probability, probabilities, equation, probability of default, conditional expectation,
We propose an original method to estimate the market price of risk under stress, which is needed to correct for risk aversion the CDS-implied probabilities of distress. The method is based, for simplicity, on a one...