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Looking for any interesting papers/methods about forecasting financial meltdowns.
Posted: Mon Nov 19, 2012 9:01 am
by Cheng
Mkay. I wouldn't say that a recession is a financial meltdown, it's simply a part of the business cycle. Financial meltdown in my book is widespread and massive destruction of wealth. 2008 went into that direction and would have probably been a full fledged one without CB intervention. Thus I rather focus on corporate bond defaults (and concurrent wipe out of equity holders).
Looking for any interesting papers/methods about forecasting financial meltdowns.
Posted: Mon Nov 19, 2012 2:01 pm
by ig
Cheng, agree with your point that fin-melt is something more substantial than corporate default. Talking about corporate default in reduced model framework i think that current definition of default should be adjusted assuming that existing definition of the PD is conditioning on the fact that government bond does not default at maturity and prescribing to government bond a chance to default from up to down.