Default Probability, Credit Spreads and Credit Derivatives

Gregory, Jon

doi:10.1002/9781118673638.ch10

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2022

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“…Especially, relevant among the bonds within the financial industry is the treasury bills since the largest position in the banks is usually held in this kind of instrument. Therefore, it is important to develop models with credit contribution that can be added to the daily P&L calculation (Arvanitis, Gregory, & Laurent, 1999;Horta, 2010;Malz, 2022;Gregory, 2012;Cooper & Mello, 1991;Bisetti, Li, & Yu, 2021). An industrial model for the P&L needs for simple implementation and high-speed performance, the P&L is calculated daily, so that, there are strict time limits to finish the calculation processes, particularly in a tier-one bank where the number of instruments and positions is extremely large.…”

Section: Introductionmentioning

confidence: 99%

Analytical Approximation for Treasury Bill Default Spreads, Profits and Losses Equations

Rodríguez-Oliveros¹,

Martin-Viscasillas²,

Garcia-Romero³

2022

JFRM

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In this work, we introduce expressions for the default spread calculation based on an approximation of the discount factor, for the specific case of Treasury Bills. Additionally, expressions for the profit and losses array are obtained supported by a pass-time yield correction. Some relevant limits are explored as well in order to illustrate the large range model applicability. Treasury Bills are especially relevant within the banking industry since the financial institutions usually hold the largest portfolio position in them.

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