Abstracts and Papers are now available. Please click here to view them. SPEAKER BIOS Viral Acharya Viral V. Acharya is an Associate Professor of Finance at London Business School and a Research Affiliate of the Center for Economic Policy Research (CEPR). He holds a Ph.D. in Finance from Stern School of Business, New York University and a Bachelor of Technology in Computer Science and Engineering from Indian Institute of Technology, Mumbai. His research interests are in the regulation of banks and financial institutions, and corporate finance, valuation of corporate debt, and asset pricing with a focus on the effects of cash management and liquidity risk. He has published articles in the Journal of Finance, Journal of Financial Economics, Review of Financial Studies, Journal of Business, and Financial Analysts Journal. He is the recipient of Best Paper Award in Corporate Finance - Journal of Financial Economics, 2000, Best Paper Award in Equity Trading - Western Finance Association Meetings, 2003, Outstanding Referee Award for the Review of Financial Studies, 2003, and the inaugural Lawrence G. Goldberg Prize for the Best Ph.D. in Financial Intermediation. Edward I. Altman Edward I. Altman is the Max L. Heine Professor of Finance at the Stern School of Business, New York University. Since 1990, he has directed the research effort in Fixed Income and Credit Markets at the NYU Salomon Center and is currently the Vice-Director of the Center. Prior to serving in his present position, Professor Altman chaired the Stern School's MBA Program for 12 years. He has been a visiting Professor at the Hautes Etudes Commerciales and Université de Paris-Dauphine in France, at the Pontificia Catolica Universidade in Rio de Janeiro, at the Australian Graduate School of Management in Sydney and Luigi Bocconi University in Milan. Dr. Altman has an international reputation as an expert on corporate bankruptcy, high yield bonds, distressed debt and credit risk analysis. He was named Laureate 1984 by the Hautes Etudes Commerciales Foundation in Paris for his accumulated works on corporate distress prediction models and procedures for firm financial rehabilitation and awarded the Graham & Dodd Scroll for 1985 by the Financial Analysts Federation for his work on Default Rates on High Yield Corporate Debt and was named "Profesor Honorario" by the University of Buenos Aires in 1996. He is currently an advisor to the Centrale dei Bilanci in Italy and to several foreign central banks. Professor Altman is also the Chairman of the Academic Council of the Turnaround Management Association. Dr. Altman was named to the Max L. Heine endowed professorship at Stern in 1988. He was inducted into the Fixed Income Analysts Society Hall of Fame in 2001 and elected President of the Financial Management Association (2002). He received his MBA and Ph.D. in Finance from the University of California, Los Angeles. Professor Altman is one of the founders and an Executive Editor of the international publication, the Journal of Banking and Finance and Advisory Editor of a publisher series, the John Wiley Frontiers in Finance Series. Professor Altman has published or edited almost two dozen books and over 100 articles in scholarly finance, accounting and economic journals. He is the current editor of the Handbook of Corporate Finance and the Handbook of Financial Markets and Institutions and the author of a number books, including Recent Advances in Corporate Finance; Investing in Junk Bonds; Distressed Securities: Analyzing and Evaluating Market Potential and Investment Risk; Corporate Financial Distress and Bankruptcy and his most recent works on Managing Credit Risk: The Next Great Financial Challenge (1998) and Bankruptcy, Credit Risk and High Yield Junk Bonds (2002). His work has appeared in many languages including French, German, Italian, Japanese, Korean, Portuguese and Spanish. Dr. Altman's primary areas of research include bankruptcy analysis and prediction, credit and lending policies, risk management in banking, corporate finance and capital markets. He has been a consultant to several government agencies, major financial and accounting institutions and industrial companies and has lectured to executives in North America, South America, Europe, Australia-New Zealand, Asia and Africa. He has testified before the U.S. Congress, the New York State Senate and several other government and regulatory organizations and is a Director and a member of the Advisory Board of a number of corporate, publishing, academic and financial institutions. Dr. Altman is Chairman of the Board of Trustees of the InterSchool Orchestras of New York and a member of the Board of Trustees of the Museum of American Financial History. Jeffery Amato Jeffery Amato is a Senior Economist in the Research and Policy Analysis Group at the Bank for International Settlements in Basel, Switzerland. He obtained a Ph.D. in Economics from Harvard University and previously worked at the Federal Reserve. His current responsibilities include monitoring developments in global financial markets and conducting research in financial economics. His recent scholarly work has focused on information imperfections in finance and macroeconomics and on credit risk, including credit ratings, the determinants of credit risk premia, and the riskiness and pricing of credit derivatives. He has published articles in leading academic journals and central banking publications. Jeffrey R. Bohn Dr. Bohn leads Moody's KMV global research group. In the past, his responsibilities included co-heading product management and managing Moody's KMV Asia. In this role he had responsibility for the client service teams selling and supporting clients in this region. Dr. Bohn has been involved in developing several of the models and products currently sold by Moody's KMV. He currently works on default probability, credit instrument valuation, and portfolio modeling research. Before working in research, Dr. Bohn worked in the client services group and spearheaded the effort to expand Moody's KMV presence in Japan and Asia. He is fluent in Japanese. Prior to joining Moody's KMV in 1997, he owned a business consulting firm called Infopattern. He has also taught in the MBA program at Golden Gate University and currently teaches a credit risk modeling class in the Masters of Financial Engineering program at the University of California, Berkeley. He holds a B.A. with Honors in Economics from Brigham Young University and an M.S. in Finance from the University of California, Berkeley. He received his Ph.D. in Finance from the University of California, Berkeley. Richard Cantor Richard Cantor is Managing Director of the Credit Policy Research Group, which conducts default research and measures ratings performance for Moody's Investors Service. He is a member of the Moody's Credit Policy Committee and co-chairs Moody's Academic Advisory Panel. Prior to his current position, he was a Senior Vice President in the Financial Guarantor Ratings Group, which rates financial guaranty insurers and reinsurers. Richard joined Moody's seven years ago from the Federal Reserve Bank of New York, where he held a variety of positions in the Research Group and was Staff Director at the Discount Window. Prior to the Fed, Richard taught Economics at UCLA and Ohio State and has taught on an adjunct basis at the Business Schools of Columbia University and NYU. Richard received a B.A. from Tufts University and a Ph.D. in Economics from Johns Hopkins University. Ian Copper Ian Cooper, MA (Cambridge) MBA (North Carolina) PhD (North Carolina) is Professor of Finance and former Director of the Institute of Finance and Accounting at the School. Ian has published both academic and practitioner work on debt markets, international finance, and corporate finance. He is Associate Editor of seven international finance journals, and consults widely. He has been Visiting Professor at the University of Chicago and the Australian Graduate School of Management. Sergei Davydenko Sergei Davydenko is a Ph.D. candidate at London Business School. He holds Master's degrees in Economics (New Economic School, Moscow) and Applied Mathematics and Physics (Moscow Institute of Physics and Technology). His areas of expertise include credit risk, corporate distress and reorganization, debt markets, and bankruptcy codes in different countries. His current research focuses on empirical implications of corporate restructuring practices for credit risk modeling. Sergei will be joining the Rotman School of Business at University of Toronto in July 2005. Greg Duffee Greg Duffee is an Associate Professor of Finance at the Haas School of Business, University of California at Berkeley. Prior to joining Haas in 1999, he was a senior economist at the Federal Reserve Board in Washington, DC. Mr. Duffee's teaching and research interests include term structure behavior, the links between financial markets and the macroeconomy, and the modeling of credit risk. Mr. Duffee received his PhD in economics from Harvard University. Pierre Collin-Dufresne Pierre Collin-Dufresne is an Associate Professor of Finance at the Haas School of Business of U.C. Berkeley since 2004. After obtaining his Ph.D. in 1998 from the HEC School of Management, Paris, France, he started as an Assistant Professor of Finance at the Graduate School of Industrial Administration of Carnegie Mellon University, where he became Associate Professor in 2003. Dr. Collin-Dufresne's teaching and research interests include Asset and Contingent Claim Pricing, Fixed Income Securities, Default Risk, Emerging Markets, International Finance, and Real Estate Economics. He has served as a consultant for multiple financial institutions and has several publications in refereed journals such as Econometrica, Journal of Finance, and Journal of Derivatives. He is a member of the NBER and of the Center for Computational Finance of Carnegie Mellon University and an associate editor of the Review of Financial Studies. He currently serves on the Advisory Research Board of Moody's. Darrell Duffie Darrell Duffie is the James Irvin Miller Professor of Finance at The Graduate School of Business, Stanford University. Duffie, a member of Stanford's finance faculty since 1984, is the author of books and research articles on asset valuation, credit risk, derivative securities, and over-the-counter markets. Duffie is a member of the Board of The American Finance Association, A Fellow of the Econometric Society, a Research Associate of the National Bureau of Economic Research, a member of Moody's Academic Research Committee, and the 2003 IAFE/Sunguard Financial Engineer of the Year. He serves on the editorial boards of several economics, finance and mathematics journals. Michael R. Foley Mr. Foley has overall responsibility for Moody's ratings and research business in Europe, the Middle East, and Africa. He also has responsibility for Moody's offices in London, Paris, Frankfurt, Madrid, Milan, Limassol, and Johannesburg, as well as Moody's affiliates and partners in Russia, Israel, Egypt and the Czech Republic. Moody's has over 400 associates in the region. Mr. Foley has matrix responsibility for European ratings across all sectors. Prior to heading up Moody's Europe, Mr. Foley co-headed the US Corporate Finance Group. At that time, he was also a member of FASAC, an advisory committee to the Financial Accounting Standards Board. Prior positions at Moody's include Managing Director for the Global Securities and the Finance Rating Groups, as well as Managing Director for Banking. He joined Moody's as the money center bank analyst. Before Moody's, he was a senior manager with KPMG Peat Marwick, where he consulted on various matters for banks and savings associations. He was a principal author of a Sheshunoff publication on the Federal Deposit Insurance Act of 1991. Before joining Peat Marwick, Mr. Foley was a supervisory analyst at the Federal Reserve Board, and was temporarily assigned to help establish the RTC Oversight Board at the inception of that entity. Mr. Foley received both his M.B.A. in finance and B.S. in Business Administration from the University of Florida. H. Gifford Fong H. Gifford Fong is President of Gifford Fong Associates, a firm specializing in fixed income, derivative product and asset allocation analysis. Independent valuation, model validation and portfolio strategy analysis are areas of emphasis. He is a graduate of the University of California where he earned his B.S., M.B.A. and J.D. (law). Mr. Fong is the editor of the Journal Of Investment Management; former editor of the Financial Analysts Journal; member of the Board of Directors and Program Chairman of the Institute for Quantitative Research in Finance; former Vice Chair and member of the Research Committee of the Research Foundation of the CFA Institute; member of the Dean's Advisory Council of the Massachusetts Institute of Technology (MIT); founding sponsor and member of the Advisory Board of the Masters In Financial Engineering Program at the University of California at Berkeley; Advisory Board of The Center for Financial Engineering and Asset Management, Shanghai's Institute for Advanced Studies, University of Science and Technology of China; and a contributor to a number of professional books and journals. In addition, Mr. Fong is co-author of "Fixed-Income Portfolio Management," a book published by Dow Jones-Irwin, and co-author of "Advanced Fixed Income Portfolio Management, The State of the Art," a book published by Probus Publishing. He is also the author of numerous professional journal publications. Mr. Fong has received a number of honors, including the Institute for Quantitative Research in Finance Award and the Financial Analysts Journal Graham and Dodd Award of Excellence. He also is on a number of boards of directors of non-related companies and non-profit institutions. Julian Franks Julian Franks BA (Sheffield) MBA (Columbia) PhD (London) is Professor of Finance and former Director of the Institute of Finance and Accounting at the School. Julian is widely published and his research focuses on bankruptcy and financial distress, corporate ownership and control and financial regulation. Recently his work on ownership and control (with Colin Mayer and Stefano Rossi) has won two international prizes. He is Associate Editor of five finance journals, a member of various advisory boards and consults widely. He served as a member of the DTI-Treasury committee for reviewing the country's insolvency code and was a member of the Company Law Review on corporate governance. He has been Visiting Professor at the University of North Carolina and the University of California at Berkeley and Los Angeles. He is one of the School's most experienced and respected professors. Paul Glasserman Paul Glasserman is the Jack R. Anderson Professor and Senior Vice Dean of Columbia Business School. His research focuses on modeling and computational problems in risk management and the pricing of derivative securities. Prior to joining the Columbia faculty in 1991, he was with Bell Laboratories, and he has also been a visiting professor of Financial Engineering at Princeton University. Glasserman's recent research in credit risk has been supported by a fellowship in Risk Measurement from the US Federal Deposit Insurance Corporation's Center for Financial Research. He is also the recipient of the 2005 Wilmott Award for Cutting-Edge Research in Quantitative Finance, a University Partnership Award from the IBM Corporation, a US National Young Investigator Award, the Outstanding Simulation Publication Award from the Institute of Management Science, and the Erlang Prize in applied probability. Glasserman is author of the book Monte Carlo Methods in Financial Engineering, published by Springer-Verlag in 2004. He has served as departmental editor of Management Science and currently serves as associate editor of Finance & Stochastics, Mathematical Finance, the Annals of Applied Probability, and the Journal of Computational Finance. He earned an A.B. from Princeton University in 1984 and a Ph.D. from Harvard University in 1988. Michael Gordy Michael Gordy is a senior economist in the Research & Statistics Division of the Federal Reserve Board. His current research focuses on the design, calibration and computation of models of portfolio credit risk. Michael is recipient of Risk's 2004 Quant of the Year and GARP's 2003 Financial Risk Manager of the Year, and serves as an associate editor of the Journal of Banking & Finance, the Journal of Credit Risk, and the International Journal of Central Banking. Michael received his Ph.D. in Economics from MIT in 1994 and a B.A. in Mathematics & Philosophy from Yale University in 1985. Jean Helwege Jean Helwege joined the Eller College of Management at the University of Arizona as Associate Professor of Finance last Fall. She teaches investments and is looking forward to delivering a new course offering for MBA/Masters in Finance students on credit risk modeling. Professor Helwege received her undergraduate degree in linguistics at the University of Chicago in 1980 and her Ph.D. in economics from U.C.L.A. in 1989. Earlier in her career, she spent a decade working in the Federal Reserve System, studying issues related to firms' capital raising and, initially, savings and loan failures. She joined the Finance Department at Ohio State University in 1998, where she taught financial institutions. Her research interests include corporate bond pricing, bankruptcy, IPOs, and capital structure. Professor Helwege's articles on credit risk are published in the Journal of Finance and Review of Financial Studies, as well as the Journal of Fixed Income. John Hull John Hull is the Maple Financial Group Professor of Derivatives and Risk Management in the Joseph L. Rotman School of Management at the University of Toronto and Director of the Bonham Center for Finance. He is an internationally recognized authority on derivatives and has many publications in that area. Recently his research has been concerned with credit risk, executive stock options, volatility surfaces, market risk, and interest rate derivatives. He was, with Alan White, one of the winners of the Nikko-LOR research competition for his work on the Hull-White interest rate model. He has acted as consultant to many North American, Japanese, and European financial institutions. He has written two books "Options, Futures, and Other Derivatives" (now in its fifth edition with sixth edition to be published in Summer, 2005) and "Fundamentals of Futures and Options Markets" (now in its fifth edition). Both books (published by Prentice Hall) have been translated into several languages and are widely used in trading rooms throughout the world. He has won many teaching awards, including University of Toronto's prestigious Northrop Frye award, and was voted Financial Engineer of the Year in 1999 by the International Association of Financial Engineers. In addition to the University of Toronto, Dr. Hull has taught at York University, University of British Columbia, New York University, Cranfield University, and London Business School. Earlier in his career he worked as a corporate planning analyst with British Shoe Corporation. He is an Associate Editor of eight academic journals. Nikunj Kapadia Nikunj Kapadia is an Associate Professor of Finance at the Isenberg School of Management, University of Massachusetts, Amherst. Professor Kapadia's research is primarily in the area of equity derivatives and credit risk. He holds a Ph.D. in Finance from the Stern School of Business, New York University, and a MBA from the Indian Institute of Management, Bangalore. His research interests are equity derivatives and credit risk. He has published articles in the Review of Financial Studies, Journal of Derivatives, and the Journal of Alternative Investments, and has served on the editorial board of the Financial Analyst Journal. Stephen Kealhofer Stephen Kealhofer is currently the managing principal of Diversified Credit Investments in San Francisco. He was the managing partner and director of research for KMV, and remains an advisor to Moody's KMV. Prior to founding KMV in 1989, Kealhofer was director of research for a loan pooling start-up in San Francisco, and taught finance at the University of California, Berkeley and Columbia University in NY. David Lando David Lando is professor of finance at The Copenhagen Business School's Department of Finance. He holds a Masters degree from the joint mathematics-economics program at the University of Copenhagen and a Ph.D. in statistics from Cornell University. His main area of research in finance is credit risk modelling and risk management. He has been a visiting scholar at the Federal Reserve Board in Washington and is currently a member of Moody's Academic and Advisory Research Committee. He has published papers in, among other journals, Econometrica and Review of Financial Studies. He is on the editorial board of three international finance journals. Before joining the Copenhagen Business School, he was a professor at the Department of Applied Mathematics and Statistics at the University of Copenhagen. Hayne E. Leland Hayne E. Leland is the Arno Rayner Professor of Finance at the Haas School of Business, University of California, Berkeley. He received B.A. and Ph.D. degrees in Economics from Harvard, and an M.Sc. (Econ.) degree from the London School of Economics. He has served as the elected President of the American Finance Association (1997) and Director of the Berkeley Program in Finance (1991-2001). He currently is a member of the Scientific Advisory Boards of Wells Capital Management and of EuroPlace Institute of Finance. Professor Leland has published articles on investment theory, optimal portfolio choice, and dynamic hedging. Recent work has focused on credit risk, optimal financing, and risk management by corporations. His research has received numerous prizes for excellence, and he has given keynote speeches at the American Finance Association, the Financial Management Association, and the AIMR. He will present the Bendheim Lectures in Finance at Princeton University in 2006. His work developing dynamic asset allocation and portfolio insurance has been widely cited and applied to portfolio management. As a founding principal of Leland O'Brien Rubinstein (LOR), he was named a Fortune Magazine "Businessman of the Year" in 1987. His profile and the story of portfolio insurance is contained in Peter Bernstein's book, Capital Ideas. In 1990, LOR developed and launched the first exchanged-traded fund (ETF). Mike Piwowar Mike Piwowar is a Financial Economist in the U.S. Securities and Exchange Commission's Office of Economic Analysis. At the SEC, Dr. Piwowar provides analytical and technical support necessary to help the Commission understand and evaluate the economic effects of its regulatory policy. He also conducts independent empirical research and analysis, primarily in the areas of market microstructure and corporate finance. Dr. Piwowar has published articles in academic journals such as the Journal of Financial Markets and the Journal of Law and Economics, and he has a paper forthcoming in the Journal of Finance. His current research on municipal and corporate bond markets has been mentioned in a number of prominent newspapers and financial publications such as The Economist, The Wall Street Journal, San Francisco Chronicle, The Bond Buyer, and Bloomberg News. Prior to joining the SEC on a permanent basis, Dr. Piwowar was a Visiting Academic Scholar on assignment from the Iowa State University where he was an Assistant Professor of Finance. Dr. Piwowar earned a PhD in finance from the Pennsylvania State University. Eli Remolona Eli M. Remolona is the Deputy Chief Representative of the Office for Asia and the Pacific of the Bank for International Settlements (BIS). His research interests are in asset pricing and market microstructure. He joined the BIS in 1999, first to work at the head office in Basel, Switzerland, then moving in January 2005 to the representative office in Hong Kong. In Basel, he served as Head of Financial Markets and Editor of the BIS Quarterly Review. Before joining the BIS, he was Research Officer in the Capital Markets Function of the Federal Reserve Bank of New York. He has a Ph.D. in economics from Stanford and has published in the Journal of Finance and Journal of Portfolio Management. At present, he is also Associate Editor of the International Journal of Central Banking. Stephen Schaefer Stephen Schaefer is Professor of Finance and Research Dean at London Business School. Formerly on the faculty of the Graduate School of Business at Stanford University, he has also been a visiting professor at the Universities of British Columbia, California (Berkeley), Chicago, Venice and, most recently, Cape Town. At London Business School he has been, at various times, a member of the Governing Body, chairman of the finance area and Director of the Institute of Finance and Accounting. His research interests include the pricing and hedging of fixed income securities and derivatives, risk management and the regulation of financial institutions. His publications include: "Non-Linear Value-at-Risk" (with Mark Britten-Jones), European Finance Review, "The Regulation of Banks and Securities Firms", European Economic Review and "The Term Structure of Real Interest Rates and the Cox, Ingersoll and Ross Model" (with R.H. Brown), Journal of Financial Economics. He currently serves on the editorial board of six professional journals including: the Review of Derivatives Research, the European Finance Review and the Journal of Fixed Income. Outside academic life, Stephen Schaefer consults for a number of major financial institutions. He is a member of Moody's Academic Research and Advisory Committee, a non-executive director of Leo Fund Management was formerly an Independent Board Member of the Securities and Futures Authority and a Trustee-Director of Smith Breeden Mutual Funds. Philipp Schönbucher Dr. Philipp J. Schönbucher is assistant professor of Risk Management at the Swiss Federal Institute of Technology in Zurich (ETH Zürich). He holds degrees in mathematics (Oxford) and economics (Bonn) and a PhD in economics (Bonn). His publications include papers on credit risk modelling, credit derivatives pricing, stochastic volatility modelling, option pricing in illiquid markets, real options and term structure models. His main area of research is credit risk modelling and credit derivatives pricing in which he has been active since 1996. Furthermore, he is author of a book on "Credit Derivatives Pricing Models" (Wiley Finance, 2003). Suresh M. Sundaresan Suresh M. Sundaresan is the Chase Manhattan Bank Professor of Economics and Finance at Columbia University. He has published in the areas of Treasury auctions, bidding, default risk, habit formation, term structure of interest rates, asset pricing, pension asset allocation, swaps, options, forwards, futures, fixed-income securities markets and risk management. His research papers have appeared in major journals such as the Journal of Finance, Review of Financial Studies, Journal of Business, Journal of Financial and Quantitative Analysis, European Economic Review, Journal of Banking and Finance, Journal of Political Economy, etc. He has also contributed articles in Financial Times, and World Bank Conferences. He is an associate editor of the Journal of Finance. His current research focus is on default risk and how its affects asset pricing and sovereign debt securities. He is a consultant to Morgan Stanley Asset Management and Ernst and Young. His consulting work focuses on term structure models, swap pricing models, credit risk models, valuation, and risk management. He has conducted training programs for leading investment banks including, Goldman Sachs, Morgan Stanley, CSFB and Lehman Brothers. He is the author of the text "Fixed-Income Markets and Their Derivatives." Roger M. Stein Dr. Stein is Managing Director of Moody's Global Managed Funds Group as well as Managing Director of the Asset Based Finance New Products Group. In Global Managed Funds, he manages a team dedicated to the research and ratings analysis of money market, bond and other fixed income funds as well as a diverse range of closed end funds and other collective investment vehicles. In Asset Based Finance, he manages team responsible for the research and development of commercial quantitative models for evaluating various classes of asset-backed securities. Prior to this, he was Managing Director of Research at Moody's KMV, where he headed a team of researchers in New York with responsibility for the development of a wide range of commercial quantitative credit risk assessment tools. He is a founding member of Moody's Academic Advisory and Research Committee, a group of leading academics in finance who collaborate and opine on Moody's quantitative research. Dr. Stein has worked in mathematical and statistical modeling at Moody's for 15 years, heading up the agency's early efforts to apply quantitative modeling to credit analysis; prior to this, he worked as an analyst in the Structured Finance Group. His areas of research include credit modeling, market risk, trading system development, analysis of large-scale simulations, and methodologies for validating the predictive power quantitative models. Dr. Stein has a Bachelor's degree from the State University of New York at Binghamton in Mathematics and Japanese Studies and a Masters degree and a Ph. D. from New York University. He is a frequent lecturer at the New York University Stern School of Business, has authored numerous academic and professional articles on quantitative finance and credit, and is the co-author of Seven Methods for Transforming Corporate Data into Business Intelligence (Prentice Hall). Klaus Toft Klaus Toft heads the Credit and Equity Derivatives Sales Strategies Group at Goldman Sachs International. Prior his current role, Klaus was responsible for Goldman's credit derivatives quantitative modeling and system developments. Prior to joining Goldman, Sachs & Co. in 1997, Klaus was on the Faculty at the Graduate School of Business at the University of Texas at Austin where he taught derivatives pricing and investment theory. His applied and academic research on credit derivatives, equity option pricing, second generation derivative securities, and optimal capital structure theory has appeared in Derivatives Week, Futures and Options World, Journal of Derivatives, Journal of Finance, Journal of Financial and Quantitative Analysis, Journal of Financial Engineering, Review of Financial Studies, and in Risk Magazine. Klaus received his M.S. and Ph.D. in Finance from the University of California, Berkeley. Lance Uggla Lance Uggla is the Chief Executive Officer of Markit, formerly Mark-it Partners. Together with his team of experienced market professionals, Lance founded Mark-it Partners in 2001, with a vision to create a data platform for daily credit valuation and to enable clients to better understand and manage their credit risk and exposure. The company is supported by an assembly of thirteen of the world's leading financial institutions in the global credit trading arena who feed current credit data into the Markit system on a daily basis, which when stored daily, creates a powerful historical database. In August 2003, Markit established a new industry standard for the identification of credit derivative long legal names based on the Reference Entity Database ("RED") Service. The service, which was founded by Deutsche Bank, Goldman Sachs and JP Morgan, and acquired by Markit aims to enhance liquidity, transparency and standardisation in the credit derivatives market as well as reduce the costs per transaction to institutions. In December 2003, Markit acquired US-based syndicated loan broker and data provider, LoanX. The company, which was founded in 2000 by executives have 50 years experience in the global syndicated loan market, was supported by 24 financial institutions, including Bank of America, CSFB, Deutsche Bank, Goldman Sachs, JP Morgan Chase and Creditex as strategic investors. In May 2004, Markit acquired UK-based Totem Market Valuations, a provider of OTC derivatives consensus valuations. This transaction provided participants with an unparalleled range of data, enabling them to meet increasingly stringent regulatory and accounting requirements. Lance Uggla began his career as VP & Director of Wood Gundy Inc. He went onto become Senior Vice President Global Trading & Sales, Investment & Corporate Bank of the Canadian Imperial Bank of Commerce in Toronto. In this role, he was responsible for the Foreign Exchange, Money Markets, Fixed Income, Debt and Origination groups globally. Prior to the creation of Mark-it Partners, Mr Uggla held the position of Vice Chair, Head of Europe and Asia for TD Securities. In addition, he held the titles of Regional Treasurer and Co-Head of TD Bank in Europe. Born in Vancouver, Mr Uggla graduated from the Simon Fraser University in Canada with a BBA and went on to take his MSc at the London School of Economics. Ton Vorst Ton Vorst is executive vice president at ABNAMRO and Global Head of Quantitative Risk Analytics. As such he is a member of the Group Risk Committee on Market Risk. He also holds a part-time position as full professor in Finance and Econometrics at Erasmus University Rotterdam. Ton has extensively published in international academic journals and is associate editor of 8 international journals such as the Journal of Derivatives, European Financial Management, Finance & Stochastics and International Review of Financial Analysis. Alan White Alan White has been on the faculty at the Rotman School of Management at the University of Toronto since 1987. He is well known for his work with Rotman Professor John Hull concerning the development of the Hull-White interest rate model and associated numerical procedures. This model is widely used by financial institutions in trading rooms around the world to value nonstandard interest rate derivatives. His research is principally in the area of derivative securities, their pricing and their use by financial institutions for risk management. Recently his research has been focused on the pricing and management of credit risk. Prof. White earned his Ph.D. from the U of T, his M.B.A. from McMaster University and his B.Eng. from McGill University. Prof. White has made numerous contributions to the academic community publishing in both academic and practitioner journals. At the Rotman School he has taught at the graduate level and served as the supervisor of the Finance Ph.D. program. Professor White was recently appointed as the first holder of the Peter L. Mitchelson / Sit Investment Associates Foundation Chair in Investment Strategy. ABSTRACTS & Papers Measuring Default Risk Premia from Default Swap Rates and EDFs Antje Berndt, Rohan Douglas, Darrell Duffie, Mark Ferguson, and David Schranzk This paper estimates recent default risk premia for U.S. corporate debt, based on a close relationship between default probabilities, as estimated by Moody?s KMV EDFs, and default swap (CDS) market rates. The default-swap data, obtained through CIBC from 27 banks and specialty dealers, allow us to establish a strong link between actual and risk-neutral default probabilities for the 64 firms in the three sectors that we analyze: broadcasting and entertainment, healthcare, and oil and gas. We find dramatic variation over time in risk premia, from peaks in the third quarter of 2002, dropping by roughly 50% to late 2003. VIEW PDF On the Relation Between Credit Spread Puzzles and the Equity Premium Puzzle Long Chen, Pierre Collin-Dufresne, and Robert S. Goldstein We ask whether the equity premium puzzle and the credit spread puzzle can be simultaneously explained by theoretical models. Specifically, we explore models that have been successful at explaining historical equity returns (e.g., Campbell and Cochrane (CC 1999) and Bansal and Yaron (BY 2004)). We find that large time-varying risk premia are essential for explaining the credit spread puzzle. However, such a feature can generate the counterfactual prediction that forward-looking default rates are pro-cyclical, since in such an economy low expected returns in good times implies a greater probability of reaching the default boundary. Therefore, to match the historical counter-cyclical default rates, we propose a default boundary that is more countercyclical than what can be explained solely with time-varying leverage ratios. Such a model captures the credit spread puzzle, and provides a possible explanation for why macroeconomic factors (e.g., Fama-French factors) can explain the common variation of credit spreads even after controlling for leverage, volatility and term structure factors. We conclude that both the equity premium and the level as well as dynamics of credit spreads can be explained simultaneously by the same pricing kernels, with a time-varying risk premium as an essential component. To investigate the time-series implications of such models, we feed historical consumption innovations into the CC model (with counter-cyclical default boundary) and show that the predicted credit spreads fit both the level and dynamics of historical credit spreads reasonably well. VIEW PDF Insider Trading in Credit Derivatives Viral V. Acharya and Timothy C. Johnson Insider trading in the credit derivatives market has become a significant concern for regulators and participants. This paper attempts to quantify the problem. Using news reflected in the stock market as a benchmark for public information, we report evidence of significant incremental information revelation in the CDS market, consistent with the occurrence of insider trading. We show that the degree of this activity increases with the number of banks having lending/monitoring relations with a given firm, and is robust to controls for non-informational trade. Furthermore, information revelation in the CDS market is asymmetric, consisting exclusively of bad news, consistent with hedging activity by banks with loan exposure and private information. We find no evidence, however, that the degree of insider activity adversely affects prices or liquidity in either the equity or credit markets. If anything, the reverse appears to be true. VIEW PDF Corporate Bond Market Transparency and Transaction Costs Amy K. Edwards, Lawrence E. Harris, and Michael S. Piwowar This study examines the effect of the recent introduction of transaction price transparency to the OTC secondary corporate bond market. Using a complete record of all US OTC secondary trades in corporate bonds, we estimate average transaction cost as a function of trade size for each bond that traded more than nine times in 2003. Costs are lower for bonds with transparent trade prices, and they drop when the TRACE system starts to publicly disseminate their prices. The results suggest that public traders will significantly benefit from the additional price transparency. VIEW PDF A Model of Swap Spreads and Corporate Bond Yields Peter Feldhütter and David Lando We propose a joint six-factor affine model for Treasury bonds, corporate bonds, and swap rates with the purpose of estimating credit and liquidity components in swap spreads. In the pricing of Treasury bonds we allow for a convenience yield unique to these bonds. Corporate bonds are priced using an intensity-based, affine framework taking into account rating migrations as in Lando (1998). We follow Dufresne and Solnik (2001) in the pricing of interest rate swaps by assuming that swap contracts are free of counterparty risk and discount the floating and fixed leg of the swap contract with the riskless rate in order to find the fair swap rate. Although the swap contract is default free, the floating rate leg in the swap is tied to the credit-risky LIBOR and the swap rate reflects this credit risk. In the empirical work we estimate our model using weekly US data for government bonds, interest rate swaps and corporate bonds rated AAA, AA, A, and BBB for the period 1996-2003. We estimate three components of swap spreads: 1) a credit risk component that is due to the credit risk in LIBOR, 2) a swap factor that is unique to the swap market, and 3) a convenience yield component of Treasury securities. We find that the credit risk component is important and increasing with the maturity of the swap, but the commonly used difference between LIBOR and GC Repo rates is a poor proxy for this component. We relate the swap factor to hedging of interest rate risk in MBS markets and find it to be increasing with maturity. We find that the Treasury component is decreasing with maturity and that it is less volatile than suggested by existing proxies. VIEW PDF The Pricing of Unexpected Credit Losses Jeffery D. Amato and Eli M. Remolona Why are spreads on corporate bonds so wide relative to expected losses from default? The spread on Baa-rated bonds, for example, has been about four times the expected loss. We suggest that the most commonly cited explanations - taxes, liquidity and systematic diffusive risk - are inadequate. We argue instead that idiosyncratic default risk, or the risk of unexpected losses due to single-name defaults in necessarily "small" credit portfolios, accounts for the major part of spreads. Because return distributions are highly skewed, diversification would require very large portfolios. Evidence from arbitrage CDOs suggests that such diversification is not readily achievable in practice, and idiosyncratic risk is therefore unavoidable. Taking a cue from CDO subordination structures, we propose value-at-risk at the Aaa-rated confidence level as a summary measure of risk in feasible credit portfolios. We find evidence of a positive linear relationship between this risk measure and spreads on corporate bonds across rating classes. VIEW PDF Measuring Marginal Risk Contributions in Credit Portfolios Paul Glasserman We consider the problem of decomposing the credit risk in a portfolio into a sum of risk contributions associated with individual obligors or transactions. For some standard measures of risk - including value-at-risk and expected shortfall - the total risk can be usefully decomposed into a sum of marginal risk contributions from individual obligors. Each marginal risk contribution is the conditional expected loss from that obligor, conditional on a large loss for the full portfolio. We develop methods for calculating or approximating these conditional expectations. Ordinary Monte Carlo estimation is impractical for this problem because the conditional expectations defining the marginal risk contributions are conditioned on rare events. We develop three techniques to address this difficulty. First, we develop importance sampling estimators specifically designed for conditioning on large losses. Next, we use the analysis underlying the importance sampling technique to develop a hybrid method that combines an approximation with Monte Carlo. Finally, we take this approach a step further and develop a rough but fast approximation that dispenses entirely with Monte Carlo. We develop these methods in the Gaussian copula framework and illustrate their performance in multifactor models. VIEW PDF The Valuation of Correlation-dependent Credit Derivatives Using a Structural Model John Hull, Mirela Predescu, and Alan White In 1976 Black and Cox proposed a structural model where an obligor defaults when the value of its assets hits a certain barrier. In 2001 Zhou showed how the model can be extended to two obligors whose assets are correlated. In this paper we show how the model can be extended to a large number of different obligors. The correlations between the assets of the obligors are determined by one or more factors. We examine the dynamics for credit spreads implied by the model and explore how the model price tranches of collateralized debt obligations (CDOs). We compare the model with the widely used Gaussian copula model of survival time and test how well the model fits market data on the prices of CDO tranches. We consider two extensions of the model. The first reflects empirical research showing that default correlations are positively dependent on default rates. The second reflects empirical research showing that recovery rates are negatively dependent on default rates. VIEW PDF Common Failings: How Corporate Defaults are Correlated Sanjiv R. Das, Darrell Duffie, and Nikunj Kapadia We develop, and apply to data on U.S. corporations from 1987-2000, tests of the standard doubly-stochastic assumption under which firms' default times are correlated only as implied by the correlation of factors determining their default intensities. This assumption is violated in the presence of contagion or "frailty" (unobservable covariates for default that are correlated across firms). Our tests do not depend on the time-series properties of default intensities. The data do not support the joint hypothesis of well specified default intensities and the doubly-stochastic assumption, although we provide evidence that this may be due to mis-specification of the default intensities, which do not include macroeconomic default-prediction covariates. Despite this rejection, there is no evidence of significant default clustering in excess of that implied by the doubly-stochastic model and correlation of observable firm-specific default covariates. VIEW PDF Measuring the Quality and Consistency of Corporate Ratings across Regions Richard Cantor Some market participants have expressed concern that the ratings of international rating agencies may not appropriately incorporate the unique corporate credit characteristics and institutional features associated with different geographical regions. Such failings could lead to ratings that are poorly ranked ordered within specific regions or ratings that are on average unduly high or low compared to other regions. Moody's, of course, has in place an extensive body of policies and practices to help ensure that local credit market characteristics are appropriately considered in the credit rating process and to promote high-quality ratings across a wide variety of geographical regions. Whether or not we have been successful, however, in achieving high quality, consistent ratings is ultimately an empirical question. VIEW PDF Do bankruptcy codes matter? A study of defaults in France, Germany, and the UK Sergei A. Davydenko and Julian R. Franks This paper studies how bankruptcy codes and creditors' rights affect distressed reorganizations in different countries. Using a sample of 2280 small firms that defaulted on their bank debt in France, Germany and the UK, we find that large differences in creditors' rights across countries lead banks to adjust their lending and reorganization practices to mitigate the expected creditor-unfriendly aspects of bankruptcy law. In particular, French banks respond to a creditor-unfriendly bankruptcy code by requiring more collateral than lenders elsewhere, and by relying on particular collateral forms that minimize the statutory dilution of their claims in bankruptcy. Despite such adjustments, bank recovery rates in default differ substantially across the three countries, with medians of 92% in the UK, 67% in Germany, and 56% in France. Notwithstanding the low level of creditor protection, low recovery rates, and high historical bankruptcy rates in France, we find that pre-distress loan spreads there are similar to those found in the creditor-friendly UK. We conclude that, despite significant adjustments in lending practices, bankruptcy codes still sharply affect default outcomes. VIEW PDF When Do Firms Default? A Study of the Default Boundary Sergei A. Davydenko This paper investigates whether default is triggered by low asset values or by liquidity shortages using a sample of US firms with observed market values of assets. The market value of assets is a very powerful default predictor, and some firms default at low asset values despite abundant liquidity. However, temporary liquidity shortages can trigger default at relatively high asset values when frictions preclude access to outside financing. The market value of assets at default varies widely in the cross-section, and depends on balance sheet liquidity, asset volatility, and tangibility. Moreover, there are many low-value and low-liquidity firms that are able to avoid default. The boundary asset value of 72 percent of the face value of debt correctly predicts the probability of default on average. However, as many as one third of defaults happen above this boundary, while an equal number of firms below it avoid default for at least a year. Thus, even if boundary-based models can be calibrated to predict the average probability of default, they are still likely to lack accuracy in the cross-section. VIEW PDF Model Foundations for the Supervisory Formula Approach Michael B. Gordy In its proposal for a New Basel Accord, the Basel Committee on Bank Supervision (2004, Part 2.IV) offers two methodologies for assigning regulatory capital charges to securitization exposures under the Internal Ratings-Based (IRB) approach. The Ratings-Based Approach sets capital primarily as a function of an external rating, such as might be assigned by Moody's or S&P, and is to be employed whenever an external rating is available. As many securitization exposures are not externally rated, the alternative Supervisory Formula Approach (SFA) determines required capital as a function of the characteristics of the collateral pool and contractual properties of the tranche. The chapter sets forth the theoretical foundation for the SFA provided by the \uncertainty in loss prioritization" (ULP) model of Gordy and Jones (2003). VIEW PDF "Surprise" in Distress Announcements: Evidence from Equity and Bond Markets Navneet Arora, Jeffrey R. Bohn, Fanlin Zhu Some modified structural and reduced-form models of credit risk implicitly assume that the market has less information than managers who declare default on their outstanding debt. As a result the announcement of default or disclosure of information that indicates a firm is in distress comes as a \surprise" to the market. In this paper, we study the extent to which private information is revealed about a firm when it announces information indicating distress. The presence of this private information can be inferred from the extent to which investors can earn abnormal returns on bonds or equities issued by firms announcing distress or default. We analyze how much of the information revealed through the declaration of a credit event is publicly available before a specific announcement of credit difficulties. Using default probabilities supplied by Moody's KMV (MKMV), known as the Expected Default Frequency? or the EDF? credit measure, we model market expectations regarding the firm's likelihood of default. We then measure the impact of information revealed through an adverse credit event conditional on this expectation. We find that conditioning on EDF credit measures, only 11% of the distressed firms' equities and 18% of the distressed bonds (belonging to 25% of the distressed firms) display a significantly negative "surprise" reaction in the sense that the price of these securities drops substantially following the announcement. The vast majority of prices for bonds and equities issued by these distressed firms reflect the firm's credit deterioration well before announcement of default or distress. Most of these significant negative price reactions tend to occur when a firm declares bankruptcy. We also find that conditioning on lagged equity market returns, the extent of the "surprise" reflected in the corporate bond market shrinks, indicating that equity prices tend to be a leading indicator of a firm's impending distress. This result, however, can also be due to differences in the samples of bonds and equities, or the lack of liquidity in the market for distressed corporate bonds. Our findings are robust to the choice of time horizon of analysis, and to the choice of publicly available information other than EDF credit measures. Our results have implications for determining the appropriate framework for modeling credit risk. VIEW PDF

home | agenda | registration | event information | contact us

speaker bios, abstracts & papers | moody's academic committee | london business school

conference presentations | moody's grant program | send link to a friend