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.

Barriers to Timely Screening Colonoscopy

Objective: Colorectal cancer (CRC) can be largely prevented or effectively treated in its early stages, yet disparities exist in timely screening. The aim of this study was to explore the disparities in CRC screening on the basis of health insurance status including private, Medicare, Medicaid, and State Administered General Assistance (SAGA). Methods: A retrospective chart review for the period January 2000 to May 2007 (95 records) was conducted at two clinic sites; a private clinic and a university hospital clinic. All individuals at these sites who met study criteria (>50 years old with screening colonoscopy) were included. Age, gender, date of first clinic visit when screening referral was made, and date of completed procedure (screening colonoscopy) were recorded. Groups were dichotomized between individuals with private health insurance and individuals with public health insurance. Individuals with any history of CRC, known pre-cancerous conditions as well as family history of CRC requiring frequent colonoscopy were excluded from the study. Linear model analysis was performed to compare the average waiting time to receiving screening colonoscopy between the groups. T-test was performed to analyze age or gender related differences between the two groups as well as within each group. Results: The average waiting time (33 days) for screening colonoscopy in privately insured individuals was significantly lower than publicly insured individuals (200 days). The time difference between the first clinic visit and the procedure was statistically significant (p < 0.0001) between the two groups. There was no statistical difference (p=0.089) in gender between these groups (public vs. private). There were also no statistically significant gender or age related differences found within each group. Conclusions: Disparities exist in timely screening for CRC and one of the barriers leading to delayed CRC screening includes health insurance status of an individual. Even within the insured group, type of insurance plays major role. There is a negative correlation between public health insurance status and timely screening. Differences in access to medical care and delivery of care experienced by patients who are publicly insured through Medicaid, Medicare, and SAGA, suggests that the State of Connecticut needs to implement changes in health care policies that would provide timely screening colonoscopy. It is evident that health insurance coverage facilitates timely access to healthcare. Therefore, there is a need for increased efforts in advocacy for policy, payment and physician participation in public insurance programs. A state-wide comprehensive program involving multiple components targeting different levels of change such as provider, patients and the community should help reduce some of the observed causes of healthcare disparities based on the insurance status.