Unfunded pension liabilities and sponsoring firm credit risk: an international analysis of corporate bond spreads

This paper tests empirically whether pension information derived by corporate pension accounting disclosures is priced in corporate bond spreads. The model represents a hybrid of more traditional accounting ratio-based models of credit risk and structural models of bond spreads initiated by Merton (1974). The model is fitted to 5 years of data from 2002 to 2006 featuring companies from the US and Europe. The paper finds that while unfunded pension liabilities are priced in the overall sample, they are not priced as aggressively as traditional leverage. Furthermore, an extended model shows that the pension–credit risk relation is most evident in the US and Germany, where unfunded pension liabilities are priced more aggressively than traditional forms of leverage. No pension–credit risk relation is found in the other countries sampled, notably the UK, Netherlands and France.

Credit risk of interest rate swaps : a comparative study of CIR and Monte Carlo simulation approach

This paper compares the credit risk profile for two types of model, the Monte Carlo model used in the existing literature, and the Cox, Ingersoll and Ross (CIR) model. Each of the profiles has a concave or hump-backed shape, reflecting the amortisation and diffusion effects. However, the CIR model generates significantly different results. In addition, we consider the sensitivity of these models of credit risk to initial interest rates, volatility, maturity, kappa and delta. The results show that the sensitivities vary across the models, and we explore the meaning of that variation.

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.

Credit cycle dependent spread determinants in emerging sovereign debt markets

We address credit cycle dependent sovereign credit risk determinants. In our model, the spread determinants' magnitude is conditional on an unobservable endogenous sovereign credit cycle as represented by the underlying state of a Markov regime switching process. Our explanatory variables are motivated in the tradition of structural credit risk models and include changes in asset prices, interest rates, implied market volatility, gold price changes and foreign exchange rates. We examine daily frequency variations of U.S. dollar denominated Eurobond credit spreads of four major Latin American sovereign bond issuers (Brazil, Colombia, Mexico and Venezuela) with liquid bond markets during March 2000 to June 2011. We find that spread determinants are statistically significant and consistent with theory, while their magnitude remarkably varies with the state of the credit cycle. Crisis states are characterized by high spread change uncertainty and high sensitivities with respect to the spread change determinants. We further document that not only changes of local currencies, but also changes of the Euro with respect to the U.S. dollar are significant spread drivers and argue that this is consistent with the sovereigns' ability to pay.

The effects of credit risk transfer on bank monitoring and firm financing

This paper examines the efects of the transfer of credit risk associated with bank loans. We are interested in (a) whether the transfer of credit risk has any impact on the intensity with which banks monitor their borrowers and (b) whether credit risk transfer infuences the amount of financing that is provided to firms in an economy. Our model first develops conditions under which bank finance is available to firrms, mainly in the spirit of Holmstrom/Tirole (1997). We then introduce projects with uncorrelated pay-offs and argue that one possible economic rationale for credit risk transfer is diversi¯cation. We analyze whether and how within this scenario the transfer of the credit risk of loans changes a bank's incentives to monitor its debtors. Finally we investigate whether and what kind of impact this may have on the amount of ¯nancing available to firms in an economy. Our results indicate that the monitoring incentives are being eroded indeed and that credit risk transfer can increase the overall amount of obtainable funds in an economy.

The Effects of Credit Risk on Dynamic Portfolio Management: A New Computational Approach

The study investigates the role of credit risk in a continuous time stochastic asset allocation model, since the traditional dynamic framework does not provide credit risk flexibility. The general model of the study extends the traditional dynamic efficiency framework by explicitly deriving the optimal value function for the infinite horizon stochastic control problem via a weighted volatility measure of market and credit risk. The model's optimal strategy was then compared to that obtained from a benchmark Markowitz-type dynamic optimization framework to determine which specification adequately reflects the optimal terminal investment returns and strategy under credit and market risks. The paper shows that an investor's optimal terminal return is lower than typically indicated under the traditional mean-variance framework during periods of elevated credit risk. Hence I conclude that, while the traditional dynamic mean-variance approach may indicate the ideal, in the presence of credit-risk it does not accurately reflect the observed optimal returns, terminal wealth and portfolio selection strategies.

Inversion of ambient seismic noise HVSR to evaluate velocity and structural models of the Lower Tagus Basin, Portugal

During its history, several significant earthquakes have shaken the Lower Tagus Valley (Portugal). These earthquakes were destructive; some strong earthquakes were produced by large ruptures in offshore structures located southwest of the Portuguese coastline, and other moderate earthquakes were produced by local faults. In recent years, several studies have successfully obtained strong-ground motion syntheses for the Lower Tagus Valley using the finite difference method. To confirm the velocity model of this sedimentary basin obtained from geophysical and geological data, we analysed the ambient seismic noise measurements by applying the horizontal to vertical spectral ratio (HVSR) method. This study reveals the dependence of the frequency and amplitude of the low-frequency (HVSR) peaks (0.2–2 Hz) on the sediment thickness. We have obtained the depth of the Cenozoic basement along a profile transversal to the basin by the inversion of these ratios, imposing constraints from seismic reflection, boreholes, seismic sounding and gravimetric and magnetic potentials. This technique enables us to improve the existing three-dimensional model of the Lower Tagus Valley structure. The improved model will be decisive for the improvement of strong motion predictions in the earthquake hazard analysis of this highly populated basin. The methodology discussed can be applied to any other sedimentary basin.

Review of the literature on credit risk modeling : development of the past 10 years

This paper traces the developments of credit risk modeling in the past 10 years. Our work can be divided into two parts: selecting articles and summarizing results. On the one hand, by constructing an ordered logit model on historical Journal of Economic Literature (JEL) codes of articles about credit risk modeling, we sort out articles which are the most related to our topic. The result indicates that the JEL codes have become the standard to classify researches in credit risk modeling. On the other hand, comparing with the classical review Altman and Saunders(1998), we observe some important changes of research methods of credit risk. The main finding is that current focuses on credit risk modeling have moved from static individual-level models to dynamic portfolio models.

Analysis of Conformational Variation in Macromolecular Structural Models

Experimental conditions or the presence of interacting components can lead to variations in the structural models of macromolecules. However, the role of these factors in conformational selection is often omitted by in silico methods to extract dynamic information from protein structural models. Structures of small peptides, considered building blocks for larger macromolecular structural models, can substantially differ in the context of a larger protein. This limitation is more evident in the case of modeling large multi-subunit macromolecular complexes using structures of the individual protein components. Here we report an analysis of variations in structural models of proteins with high sequence similarity. These models were analyzed for sequence features of the protein, the role of scaffolding segments including interacting proteins or affinity tags and the chemical components in the experimental conditions. Conformational features in these structural models could be rationalized by conformational selection events, perhaps induced by experimental conditions. This analysis was performed on a non-redundant dataset of protein structures from different SCOP classes. The sequence-conformation correlations that we note here suggest additional features that could be incorporated by in silico methods to extract dynamic information from protein structural models.

Free fatty acid receptors:structural models and elucidation of ligand binding interactions

BACKGROUND: The free fatty acid receptors (FFAs), including FFA1 (orphan name: GPR40), FFA2 (GPR43) and FFA3 (GPR41) are G protein-coupled receptors (GPCRs) involved in energy and metabolic homeostasis. Understanding the structural basis of ligand binding at FFAs is an essential step toward designing potent and selective small molecule modulators.

RESULTS: We analyse earlier homology models of FFAs in light of the newly published FFA1 crystal structure co-crystallized with TAK-875, an ago-allosteric ligand, focusing on the architecture of the extracellular binding cavity and agonist-receptor interactions. The previous low-resolution homology models of FFAs were helpful in highlighting the location of the ligand binding site and the key residues for ligand anchoring. However, homology models were not accurate in establishing the nature of all ligand-receptor contacts and the precise ligand-binding mode. From analysis of structural models and mutagenesis, it appears that the position of helices 3, 4 and 5 is crucial in ligand docking. The FFA1-based homology models of FFA2 and FFA3 were constructed and used to compare the FFA subtypes. From docking studies we propose an alternative binding mode for orthosteric agonists at FFA1 and FFA2, involving the interhelical space between helices 4 and 5. This binding mode can explain mutagenesis results for residues at positions 4.56 and 5.42. The novel FFAs structural models highlight higher aromaticity of the FFA2 binding cavity and higher hydrophilicity of the FFA3 binding cavity. The role of the residues at the second extracellular loop used in mutagenesis is reanalysed. The third positively-charged residue in the binding cavity of FFAs, located in helix 2, is identified and predicted to coordinate allosteric modulators.

CONCLUSIONS: The novel structural models of FFAs provide information on specific modes of ligand binding at FFA subtypes and new suggestions for mutagenesis and ligand modification, guiding the development of novel orthosteric and allosteric chemical probes to validate the importance of FFAs in metabolic and inflammatory conditions. Using our FFA homology modelling experience, a strategy to model a GPCR, which is phylogenetically distant from GPCRs with the available crystal structures, is discussed.

The credit spread dynamics of Latin American euro issues in international bond markets

This paper investigates two important relationships using the sovereign issues made by major Latin American economies in the international bond market: the determinants of credit spread changes using variables derived from structural and macroeconomic theory and the impact of a default episode on the underlying equilibrium dynamics. We find four significant determinants of credit spread changes: an asset and interest rate factor—consistent with structural models of credit spread pricing; the exchange rate—consistent with macroeconomic determinants and the slope of the yield curve—consistent with a business cycle effect. Also, an intra-regional analysis of sovereign yields reveals a shift in the long-run equilibrium dynamics around the Argentine default on the 23 December 2001.

Structural modeling of high-affinity thyroid receptor-ligand complexes

Understanding the molecular basis of the binding modes of natural and synthetic ligands to nuclear receptors is fundamental to our comprehension of the activation mechanism of this important class of hormone regulated transcription factors and to the development of new ligands. Thyroid hormone receptors (TR) are particularly important targets for pharmaceuticals development because TRs are associated with the regulation of metabolic rates, body weight, and circulating levels of cholesterol and triglycerides in humans. While several high-affinity ligands are known, structural information is only partially available. In this work we obtain structural models of several TR-ligand complexes with unknown structure by docking high affinity ligands to the receptors` ligand binding domain with subsequent relaxation by molecular dynamics simulations. The binding modes of these ligands are discussed providing novel insights into the development of TR ligands. The experimental binding free energies are reasonably well-reproduced from the proposed models using a simple linear interaction energy free-energy calculation scheme.

Measurement and structural properties of organizational codes of ethics in private and public Sweden

Purpose – The purpose of this paper is to test the measurement and structural properties in a model of organizational codes of ethics (OCE) in Sweden.

Design/methodology/approach – The measurement and structural properties of four OCE constructs (i.e. surveillance/training, internal communication, external communication, and guidance) were described and tested in a dual sample based upon private and public sectors of Sweden.

Findings – Results show that the measurement and structural models of OCE in part have a satisfactory fit, validity, and reliability.

Research limitations/implications – The paper makes a contribution to theory as it outlines a set of OCE constructs and it presents an empirical test of and OCE model in respect to measurement and structural properties. A number of research limitations are provided.

Practical implications – It provides a model to be considered in the implementation and monitoring of OCE. The present research provides opportunities for further research in refining, extending, and testing the proposed OCE model in other cultural and organizational settings.

Originality/value – The OCE model extends previous studies that have been predominately descriptive, by using confirmatory factor analysis and structural equation modeling.