Effect of Foreign Exchange Rates on the Default Correlation

Default correlation analysis has an important role in asset pricing and credit risk management. Our proposed default model aims to analyze the default correlation for two international companies. In this analysis, we would like to incorporate existing correlation between the stock indices in different countries and study its effect on the default correlation measure. Moreover, there is evidence in the literature of sensitivity of equity index returns to foreign exchange (FX) rates.

Advanced Risk Management Analytics

 

Our objectives are to research, develop, test, and implement:

1. New yield curve construction and smoothing algorithms and improvements to standard curve construction algorithms, in particular, that are better adapted to illiquid markets such as Mexico, Israel, etc. 2. We seek fully automated real-time curve construction algorithms, which will allow for traders to use and data vendors to provide curves evolving in real time.

3. Interest rate spread curve construction algorithms, to be applied both to corporate spread and inflation spread curves.

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