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- Byström, Hans
(author)
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An alternative way of estimating asset values and asset value correlations
- 2011
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In: Journal of Fixed Income. - : Pageant Media US. - 1059-8596 .- 2168-8648. ; 21:2, s. 30-38
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Journal article (peer-reviewed)abstract
- Abstract in UndeterminedWe suggest a new way of modeling the dynamics of a firm’s asset value and discuss how it could be useful in the computation of asset value correlations in multivariate credit risk models. The method relies on credit spreads from the credit default swap market and by combining these spreads with stock prices and leverage ratios we show how one can construct a proxy for the asset value. This proxy is then used to calculate asset value correlations among a group of major European banks selected from the stress test conducted by the Committee of European Banking Supervisors (CEBS) in 2010. The asset correlations are presented as a function of the banks’ size, default risk and geographic location.
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- Byström, Hans
(author)
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An index to evaluate fund and fund manager performance
- 2011
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In: Applied Economics Letters. - : Informa UK Limited. - 1466-4291 .- 1350-4851. ; 18:13-15, s. 1311-1314
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Journal article (peer-reviewed)abstract
- I propose a new index, the b-index, to measure the performance of funds and fund managers. A fund or fund manager has a b-index equal to b if b is the highest number for which it holds that the fund/fund manager has returned more than b% at least b years throughout the history of the fund/fund manager.
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- Byström, Hans
(author)
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Asset Value Correlation Bounds for Firms with Foreign Exchange Exposure
- 2013
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In: Journal of Fixed Income. - 1059-8596. ; 22:4, s. 75-89
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Journal article (peer-reviewed)abstract
- This article deals with asset correlation estimation among firms with foreign exchange exposure. In most credit risk models the exchange rate risk is ignored, i.e. the borrowing firms are supposed to have assets denominated in the same currency as their debt. In reality, this is often not the case and if the asset portfolios of two borrowers are exposed to foreign exchange risk the correlation between these asset portfolios is biased upwards. The size of the asset value correlation bias depends on the time-series behavior of the two borrowers’ asset values and an empirical assessment of the size of this bias is therefore non-trivial since the asset values of the borrowers are non-observable. In this article, using a new way of estimating asset values, we attempt to estimate this bias for a set of major S&P500 firms in various industries. Our empirical findings support the theory and we find typical asset correlation estimates ignoring the exchange rate risk to be significantly biased. We therefore suggest that risk managers compute upper and lower bounds to the asset correlation estimates as a matter of routine and that if the exact asset correlation is required, it is estimated through a careful assessment of the foreign exchange exposure of the borrowing firms.
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- Byström, Hans
(author)
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Back to the future: Futures margins in a future credit default swap index futures market
- 2007
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In: Journal of Futures Markets. - : Wiley. - 1096-9934 .- 0270-7314. ; 27:1, s. 85-104
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Journal article (peer-reviewed)abstract
- The introduction of exchange-traded credit default swap (CDS) index futures is eminent and this development in the credit market is the subject of this article. A theoretically appealing and practically implementable approach to computing accurate futures margins based on extreme value theory is suggested. The approach is then exemplified with a study of the increasingly popular iTraxx Europe CDS index market. Although this market is not organized through an exchange and is not a futures market, the empirical results together with an arbitrage argument nonetheless suggest margin levels in a future exchange-traded CDS index futures market computed using extreme value theory to be superior to those computed using the traditional normal distribution or the actual historical distribution. (c) 2007 Wiley Periodicals, Inc.
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- Byström, Hans
(author)
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Blockchains, Real-Time Accounting and the Future of Credit Risk Modeling
- 2016
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Other publication (other academic/artistic)abstract
- In this paper (letter) I discuss how blockchains potentially could affect the way credit risk is modeled, and how the improved trust and timing associated with blockchain-enabled real-time accounting could improve default prediction. To demonstrate the (quite substantial) effect the change would have on well-known credit risk measures, a simple case-study compares Z-scores and Merton distances to default computed using typical accounting data of today to the same risk measures computed under a hypothetical future blockchain regime.
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| 8. |
- Byström, Hans
(author)
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Blockchains, Real-time Accounting, and the Future of Credit Risk Modeling
- 2019
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In: Ledger. - 2379-5980. ; 4, s. 40-47
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Journal article (peer-reviewed)abstract
- In this paper I discuss how blockchains potentially could affect the way credit risk is modeled, and how the improved trust and timing associated with blockchain-enabled real-time accounting could improve default prediction. To demonstrate the (quite substantial) effect the change would have on well-known credit risk measures, a simple case-study compares Z-scores and Merton distances to default computed using typical accounting data of today to the same risk measures computed under a hypothetical future blockchain regime.
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| 9. |
- Byström, Hans
(author)
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Credit Default Swaps and Equity Prices: The iTraxx CDS Index Market
- 2008
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In: Credit Risk - Models, Derivatives, and Management. Financial Mathematics Series. ; 6
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Book chapter (other academic/artistic)abstract
- In this paper we provide some early evidence of a link between the iTraxx credit default swap (CDS) index market and the stock market. To our knowledge this is the first paper studying this relationship. Knowledge about the link between stock prices, stock return volatilities and CDS spreads is important not only for risk managers using credit default swaps for hedging purposes, but also to anyone trying to profit from arbitrage possibilities in the CDS market. For a sample of European sectoral iTraxx CDS indexes, a correlation study reveals a tendency for iTraxx CDS spreads to narrow when stock prices rise and vice versa. Furthermore, there is some evidence of firm-specific information being embedded into stock prices before it is embedded into CDS spreads. Stock price volatility is also found to be significantly correlated with CDS spreads and the spreads are found to increase (decrease) with increasing (decreasing) stock price volatilities. Finally, we find significant positive autocorrelation in the iTraxx market.
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