Empirical Analysis of Credit Risk Regime Switching and Temporal Conditional Default Correlation in Credit Default Swap Valuation: The Market liquidity effect

In this paper, we extend the debate concerning Credit Default Swap valuation to include time varying correlation and co-variances. Traditional multi-variate techniques treat the correlations between covariates as constant over time; however, this view is not supported by the data. Secondly, since financial data does not follow a normal distribution because of its heavy tails, modeling the data using a Generalized Linear model (GLM) incorporating copulas emerge as a more robust technique over traditional approaches. This paper also includes an empirical analysis of the regime switching dynamics of credit risk in the presence of liquidity by following the general practice of assuming that credit and market risk follow a Markov process. The study was based on Credit Default Swap data obtained from Bloomberg that spanned the period January 1st 2004 to August 08th 2006. The empirical examination of the regime switching tendencies provided quantitative support to the anecdotal view that liquidity decreases as credit quality deteriorates. The analysis also examined the joint probability distribution of the credit risk determinants across credit quality through the use of a copula function which disaggregates the behavior embedded in the marginal gamma distributions, so as to isolate the level of dependence which is captured in the copula function. The results suggest that the time varying joint correlation matrix performed far superior as compared to the constant correlation matrix; the centerpiece of linear regression models.

The Associations Between Social, Behavioral, and Health Risk Factors on a High School Student’s Decision to Pursue Post High School Plans

Background: Due to the relationship between SES and health, pursuing post high-school plans can lead to better future health outcomes for the student. The current paper assesses how behavioral and health risk factors, and family and social support, effect a student’s decision to pursue post high school plans. Methods: Data from the Youth Behavioral Component of the 2007 Connecticut School Health Survey were analyzed. Composite measures of exposure to/participation in violent behavior, mental and physical health, family/social support and substance abuse were created. The effects of these domains on the decision to pursue post high-school plans were assessed using logistic regression. Data were stratified by socioeconomic status. Results: Low SES students were more likely than high SES students to be doubtful for post high-school plans. Cocaine abuse emerged as the risk factor that put low SES students at the highest odds of not pursuing post high-school plans, followed by involvement in violent/aggressive behavior, and receiving less family/social support than their peers. Similar findings regarding violence and family/social support were found in the high SES group. Findings regarding substance abuse in the high SES group were not statistically significant. Discussion: Prevention programs regarding violence and substance abuse may have the added benefit of increasing the likelihood that high school students will make post high school plans. Preventing cocaine use among low SES students may be of particular importance. Violence prevention measures should be tailored to the target group. Adequate family/social support emerged as an encouraging factor for post high school plans.