swap rates and credit quality this article presents a model for valuing claims subject to default by both contracting parties such as swaps and forwards with counterparties of different default risk the promised cash flows of a swap are discounted by a switching discount rate that at any given state and time is equal to the discount rate of the counterparty for whom the swap is currently out of the money that is a liability the impact of credit risk asymmetry and of netting is presented through both theory and numerical examples which include interest rate and currency swaps this article presents a model for valuing claims subject to default by both contracting parties such as swaps and forwards this extends the valuation model for defaultable claims proposed by duffie and singleton 1994 to cases in which the two counterparties have asymmetric default risk the extension permits a reexamination of the impact of credit risk on swap rates while the valuation model applies to all forms of contingent claims in which both contracting parties are at risk to default such as forward contracts we focus on swaps for purposes of illustration for example consider a 5 year interest rate swap between a given party paying a floating rate such as the london inter bank offered rate libor and another counterparty paying a fixed rate replacing the given fixed rate counterparty with a lower quality counterparty whose bond yields are 100 basis points higher increases the swap rate by roughly 1 basis point using our model and typical parameters for libor rate processes this credit impact on swap rates is approximately linear within the range of normally encountered credit quality for a 5 year currency swap given a foreign exchange rate with 15 percent volatility our model shows the impact of credit risk asymmetry on the market swap rate to be roughly 10 fold greater than that for interest rate swaps that is approximately 10 basis points in swap rate per 100 basis points in bond yield credit spread the main goal of this article is to provide a simple and theoretically consistent model allowing such computations

healthcare services accessibility of children in the usa the increase in the number of children without access to healthcare services is an increasingly urgent issue in the united states by using data from the community tracking study household survey 1996 to 1997 we focus this study on the determinants that cause for the widening gap of healthcare service accessibility among children 18 years and under in the usa our empirical results suggest that factors such as the out of pocket price of healthcare services household income years of education by parent or guardian health insurance coverage access to healthcare provider availability of regular provider obtaining an appointment and travelling time and provider patient interaction strongly determine the actual use of outpatient services by children as realized access i e accessibility

the valuation of options on yields abstract many contingent claims incorporate options on yield levels i derive closed form expressions for european yield option prices using a general equilibrium model in which the underlying yield is the relevant state variable the properties of these options differ markedly from those of conventional options on traded assets for example yield call values can be less than their intrinsic value and can be decreasing functions of the underlying yield these features have important hedging implications i examine the empirical implications of the model using price data for the 13 week t bill options traded on the chicago board options exchange

interest rate swaps abstract using quotations from two interest rate swap dealers with different credit ratings aaa and a we examine the effect of dealers credit reputations on swap quotations and bid offer spreads the aaa offer rates are significantly higher than the a offer rates and the aaa bid rates are significantly lower than the a bid rates we also document the relation between swap rates and par bond yields estimated from london interbank offered rate libor and bid rate libid data we identify some of the problems in testing the implications of swap pricing theory

regulatory implications of credit risk modelling abstract this introduction places in context the papers on credit risk modelling contained in the special issue we explain why credit risk modelling has become such a focus of interest for practitioners and financial supervisors even though as we explain the current modelling technologies have significant weaknesses they offer the possibility of major changes in the ways banks are managed and regulated the main impediment to greater use of these models especially by regulators is the difficulty involved in back testing the risk measures they produce we suggest some thoughts on how back testing and other types of model assessment might be performed

a comparative analysis of current credit risk models the new bis 1998 capital requirements for market risks allows banks to use internal models to assess regulatory capital related to both general market risk and credit risk for their trading book this paper reviews the current proposed industry sponsored credit value at risk methodologies first the credit migration approach as proposed by jp morgan with creditmetrics is based on the probability of moving from one credit quality to another including default within a given time horizon second the option pricing or structural approach as initiated by kmv and which is based on the asset value model originally proposed by merton merton r 1974 journal of finance 28 449 470 in this model the default process is endogenous and relates to the capital structure of the firm default occurs when the value of the firm s assets falls below some critical level third the actuarial approach as proposed by credit suisse financial products csfp with creditrisk and which only focuses on default default for individual bonds or loans is assumed to follow an exogenous poisson process finally mckinsey proposes creditportfolioview which is a discrete time multi period model where default probabilities are conditional on the macro variables like unemployment the level of interest rates the growth rate in the economy which to a large extent drive the credit cycle in the economy 2000 elsevier science b v all rights reserved

the structure of demand for health care latent class versus two part models we contrast the two part model tpm that distinguishes between users and non users of health care with a latent class model lcm that distinguishes between infrequent and frequent users in model comparisons using data on counts of utilization from the rand health insurance experiment rhie we find strong evidence in favor of the lcm we show that individuals in the infrequent and frequent user latent classes may be described as being healthy and ill respectively although sample averages of price elasticities conditional means and event probabilities are not statistically different the estimates of these policy relevant measures are substantively different when calculated for hypothetical individuals with specific characteristics

assessing the case for social experiments rs ecent academic debates pit two alternative approaches to policy evaluation against one another the first is the experimental approach based on the random assignment of accepted program applicants to a recipient or treatment group and a non recipient or control group the second is the nonexperimental or econometric approach that uses a variety of microdata sources statistical methods and behavioral models to compare the outcomes of participants in social programs with those of nonparticipants the central question addressed in this paper is whether or not randomized social experiments aid in securing answers to basic questions about the evaluation of social programs there are many distinct and complementary approaches to the study of the impact of public policy including full general equilibrium analysis of policy impacts tinbergen 1956 auerbach and kotlikoff 1987 shoven and whalley 1992 kydland and prescott 1991 and less ambitious partial equilibrium microeconomic structural research programs such as those designed to estimate the impact of taxes on labor supply both approaches offer answers to many interesting counterfactual policy questions but their credibility rests critically on the quality of the empirical input used to generate their answers

an analysis of count data models for the study of exclusivity in wine consumption several models which analyse count data have been proposed in econometric literature these models allow the discrete nonnegative nature of specific phenomena of interest to be gathered in a appropriate way and can be useful for the explanation of specific preference structures among individuals in this work an analysis of the number of wine types consumed by residents of tenerife is carried out with an aim to observe which characteristics determine the exclusivity in its consumption given the current context of increased competition in this sector the specific characteristics of the considered variable allow the study to cover two aspects the first is methodological and is seen by the variety of models that may be considered in this case this focus consists in comparing several possibilities which fit the type of count data involved the second aspect is clearly empirical and is based on the description of not only the most appropriate decision making mechanism for the study but in the identif

responses to changes in domestic water tariff structures a latent class analysis on household level data from granada spain a problem that affects the estimation of water demand functions is the presence of unobserved individual heterogeneity which means that a common demand function is unlikely to represent the behavior of all users we implement latent class models to estimate water demand functions for four groups of users who are classified according to their unobservable preferences this more flexible approach makes it possible to distinguish four different response patterns to changes in the drivers of water use including different price elasticities these results should be of particular interest to regulators who would like to tailor water demand management policy to heterogeneous users our analysis exploits household level panel data on residential water demand and consumers characteristics obtained by combining information from a survey of 1 465 domestic users in the city of granada and bimonthly price and consumption data supplied by this city s water supplier from the period 2009 2011

a microeconometric model of the demand for health care and health insurance in australia this paper develops a model for interdependent demand for health insurance and health care under uncertainty to throw light on the issue of insurance induced distortions in the demand for health care services the model is used to empirically analyse the determinants of the choice of health insurance type and seven types of health care services using micro level data from the 1977 78 australian health survey econometric implementation of the model involves simultaneously issues of discreteness of choice selectivity and stochastic dependence between health insurance and utilization health status appears to be more important in determining health care service use than health insurance choice while income appears to be more important in determining health insurance choice than in determining health care service use for a broad range of health care services both moral hazard and self selection are found to be important determinants of utilization of health care services

the default risk of swaps we characterize the exchange of financial claims from risky swaps these transfers are among three groups shareholders debtholders and the swap counterparty from this analysis we derive equilibrium swap rates and relate them to debt market spreads we then show that equilibrium swaps in perfect markets transfer wealth from shareholders to debtholders in a simplified case we obtain closed form solutions for the value of the default risk in the swap for interest rate swaps we obtain numerical solutions for the equilibrium swap rate including default risk we compare these with equilibrium debt market default risk spreads swaps have been one of the most explosive and important innovations in international capital markets in the last 10 years in its simplest form a swap consists of an agreement hetween two entities called counterparties to exchange in the future two streams of cash flows in a currency swap these streams of cash flows consist of a stream of interest and principal payments in one cvtrrency exchanged for a stream of interest and principal payments of the same maturity in another currency in an interest rate swap they consist of streams of interest payments of one type fixed or floating exchanged for streams of interest payments of the other type in the same currency the two types of swap are shown in appendix 1 the economic importance of swap transactions is the fact that they can he comhined with deht issues to change the nature of the liahility for the borrower the sum of a hond issue and a currency swap gives a net liability stream which is equivalent to transforming the bond liability into a different currency a floating rate note combined with an interest rate swap results in a liability equivalent to fixed rate debt two issues have dominated the academic literature on swaps the first concerns the reasons for their use arbitrage of imperfections in capital markets was the original cause of their appearance price and henderson 1984 turnbull 1987 shows that lowering borrowing costs by a synthetic transaction involving a swap is not possible in a complete integrated capital market subsequent authors wall and pringle 1988 arak estrella groodman and silver 1988 smith smithson and wakeman 1987 observe

the analytic pricing of asymmetric defaultable swaps swaps where both parties are exposed to credit risk still lack convincing pricing mechanisms this article presents a reduced form model where the event of default is related to structural characteristics of each party the cash flows submitted to credit risk are identified before the swap is priced analytical pricing formulas for interest rate and currency swaps are computed using a gaussian model for risky bonds currency swaps exhibit additional correlation risk the benefits from netting depend on the balance between exposures and market conditions in valuation we show that sources of credit risk asymmetries are also likely to impact on credit spreads

an econometric model of the two part decision process in the demand for health the decision to contact a physician and the decision about how often to contact a physician are determined by different decisionmakers we introduce a negative binomial distributed hurdle model that specifies the two stages of the decisionmaking process as different stochastic processes while at the same time taking care of the discrete nature of the data empirical results are based on a cross section of the west german socioeconomic panel specification tests reveal that the two stages of the process need to be treated as two distinct processes this in turn implies that ignoring this distinction leads to serious misinterpretation

the impact of default risk on the prices of options and other derivative securities abstract this paper presents a model for valuing derivative securities when there is default risk the holder of a security is assumed to recover a proportion of its no default value in the event of a default by the counterparty both the probability of default and the size of the proportional recovery are random the paper shows how data on bonds issued by the counterparty can be used to provide information about model parameters

much ado about two reconsidering retransformation and the two part model in health econometrics in health economics applications involving outcomes y and covariates x it is often the case that the central inferential problems of interest involve e y x and its associated partial effects or elasticities many such outcomes have two fundamental statistical properties y 0 and the outcome y 0 is observed with sufficient frequency that the zeros cannot be ignored econometrically this paper 1 describes circumstances where the standard two part model with homoskedastic retransformation will fail to provide consistent inferences about important policy parameters and 2 demonstrates some alternative approaches that are likely to prove helpful in applications

more health care utilization with more insurance coverage evidence from a latent class model with german data we analyse the impact of optional deductibles private supplementary health insurance and income on the demand for health care utilization measured as the number of physician visits with data from the german socio economic panel soep with a set of newly available variables for the years 2002 2004 and 2006 that measure individual health more accurately and including risk attitudes towards health we find that possible endogeneity of the insurance choice is not a problem a latent class approach that takes into account the panel structure of the data reveals that especially individuals who have few doctor visits the low users respond strongest to insurance status and income in this group we find that more insurance increases the demand for physician visits and there is a pro rich inequity in health care utilization no such effects are found for the high users

the effect of double coverage on health care utilization of children double coverage refers to a situation in which a person is covered by more than one health plan in a family in which the husband and wife are both offered employer provided insurances it is possible for one or more family members to be double covered this article is the first to examine double coverage of children and quantify the effects of double coverage on health care utilization for any population results show that double coverage does not affect the frequency at which children consume medical services but rather double coverage leads children to consume more expensive forms of health care

moral hazard and the demand for health services a matching estimator approach we estimate the impact of extra health insurance coverage beyond a national health system on the demand for several health services traditionally the literature has tried to deal with the endogeneity of the private extra insurance decision by finding instrumental variables since a priori instrumental variables are hard to find we take a different approach we focus on the most common health insurance plan in portugal adse which is given to all civil servants and their dependents we argue that this insurance is exogenous i e not correlated with the beneficiaries health status this identifying assumption allows us to estimate the impact of having adse coverage on the demand for three different health services using a matching estimator technique the health services used are number of visits number of blood and urine tests and the probability of visiting a dentist results show large positive effects of adse coverage for number of visits and tests among the young 18 30 years old but only the latter is statistically significantly different from zero the effects represent 21 8 and 30 of the average number of visits and tests for the young on the contrary we find no evidence of moral hazard on the probability of visiting a dentist

emerging problems with the basel capital accord regulatory capital arbitrage and related issues in recent years securitization and other financial innovations have provided unprecedented opportunities for banks to reduce substantially their regulatory capital requirements with little or no corresponding reduction in their overall economic risks a process termed regulatory capital arbitrage these methods are used routinely to lower the eaective risk based capital requirements against certain portfolios to levels well below the basel capital accord s nominal 8 total risk based capital standard this paper discusses the principal techniques used to undertake capital arbitrage and the diaculties faced by bank supervisors in attempting to deal with these activities under the current capital framework 2000 elsevier science b v all rights reserved

health insurance and the demand for medical care evidence from a randomized experiment we estimate how cost sharing the portion of the bill the patient pays affects the demand for medical services the data come from a randomized experiment a catastrophic insurance plan reduces expenditures 31 percent relative to zero out of pocket price the price elasticity is approximately 0 2 we reject the hypothesis that less favorable coverage of outpatient services increases total expenditure for example by deterring preventive care or inducing hospitalization

demand systems and frequency of purchase models understanding the frequencies of purchase and the average purchased quantities is important for marketing strategies such as the loss leader pricing strategy we develop a framework for analysing a

cross sectional versus time series estimation of term structure models empirical results for the dutch bond market abstract we compare time series and cross section estimates of the well known vasicek and cir term structure models for a dataset of daily bond prices and short term interest rates for the netherlands the main finding is the great similarity between the two models with respect to the cross sectional term structure parameter estimates and implied bond option values from a time series perspective we find that for some maturities the data reject the constant volatility vasicek model and indicate the presence of the cir volatility effects

on measuring credit risks of derivative instruments abstract this paper critically reviews current practices for measuring credit risks of derivative instruments it argues that there are two major problems with the standard measurement approach first it uses models of the stoachstic behavior of finanacial variables while ignoring both their inherent oversimplification and the uncertainty in their parameters second it ignores the correlations among exposures in derivative intruments and the probabilities of countrypartly default this paper deomonstrates that these practices can produce large errors in the estimation of distribution of both future credit exposures and future credit losses

the determinants of access to health care and medicines in india abstractthis article explores the issue of demand for health care and medicines in india where household share of total health expenditure is one of the highest among high and low income countries previous work found that important determinants include health status socio demographics income and demand for care was inelastic compared with previous studies this article uses large household data sets including data on medicine expenditure to explore health seeking behaviour count models find that determinants include health status socio demographic information health insurance household expenditure and government regulation elasticities range from 0 13 to 0 03 and are generally consistent with literature findings for inpatient care conditional on having at least one hospitalization the expected number of hospitalizations increases with being male and household expenditure medicine expenditure accounts for a large share of household health expenditure low income individuals could experience

a latent class approach to tourists length of stay abstract in this paper a conditional demand function is estimated for the length of stay at a tourist destination the microeconomic model specifies the demand for the length of stay conditional on the remaining holiday characteristics that the tourist has chosen the destination type of accommodation etc the empirical model uses a latent class truncated poisson regression which acknowledges the existence of groups or segments of demand with different preferences in the case under study a distinction is made between two segments with a preference for either a longer or shorter holiday the statistical model also resolves a problem of multimodality acknowledged in previous analyses to be one of the main characteristics of this variable

the demand for episodes of treatment in the health insurance experiment abstract this paper analyzes claims data from the rand health insurance experiment which were grouped into episodes of treatment the insurance plans in the experiment have coinsurance and a cap on out of pocket spending using new statistical techniques to adjust for the increased sickliness of those who exceed the cap the effects of coinsurance on cost per episode and number of episodes are estimated cost sharing reduced the number of episodes but had little effect on cost per episode people in the experiment responded myopically as their current insurance status changed through the year the price elasticity of spending was about 0 2 throughout the range of coinsurance studied when data permit it the study of episodes complements analyses of annual medical spending by revealing more about how decisions to spend are made within the year

demand for medical care by the elderly a finite mixture approach summary in this article we develop a finite mixture negative binomial count model that accommodates unobserved heterogeneity in an intuitive and analytically tractable manner this model the standard negative binomial model and its hurdle extension are estimated for six measures of medical care demand by the elderly using a sample from the 1987 national medical expenditure survey the finite mixture model is preferred overall by statistical model selection criteria two points of support adequately describe the distribution of the unobserved heterogeneity suggesting two latent populations the healthy and the ill whose fitted distributions diaer substantially from each other 1997 by john wiley sons ltd

reforming health care evidence from quantile regressions for counts i consider the problem of estimating the effect of a health care reform on the frequency of individual doctor visits when the reform effect is potentially different in different parts of the outcome distribution quantile regression is a powerful method for studying such heterogeneous treatment effects only recently has this method been extended to situations where the dependent variable is a non negative integer count an analysis of a 1997 health care reform in germany shows that lower quantiles such as the first quartile fell by substantially larger amounts than what would have been predicted based on poisson or negative binomial models

credit risk exposure with interest and currency swaps abstract the increased use of financial derivatives like interest rate and currency swap contracts has drawn much attention as it exposes banks to non performance by their counterparts this credit risk exposure is of great concern to monetary authorities e g the bank for international settlements in this paper a method for the determination of credit risk exposure is developed in which the exposure is a function of interest rates exchange rates and lives of the contracts to quantify the credit risk exposure simulations of the variables have been used

the intersection of market and credit risk abstract economic theory tells us that market and credit risks are intrinsically related to each other and not separable we describe the two main approaches to pricing credit risky instruments the structural approach and the reduced form approach it is argued that the standard approaches to credit risk management creditmetrics creditrisk and kmv are of limited value when applied to portfolios of interest rate sensitive instruments and in measuring market and credit risk empirically returns on high yield bonds have a higher correlation with equity index returns and a lower correlation with treasury bond index returns than do low yield bonds also macro economic variables appear to influence the aggregate rate of business failures the creditmetrics creditrisk and kmv methodologies cannot reproduce these empirical observations given their constant interest rate assumption however we can incorporate these empirical observations into the reduced form of jarrow and turnbull 1995b drawing the analogy risk 5 63 70 model here default probabilities are correlated due to their dependence on common economic factors default risk and recovery rate uncertainty may not be the sole determinants of the credit spread we show how to incorporate a convenience yield as one of the determinants of the credit spread for credit risk management the time horizon is typically one year or longer this has two important implications since the standard approximations do not apply over a one year horizon first we must use pricing models for risk management some practitioners have taken a different approach than academics in the pricing of credit risky bonds in the event of default a bond holder is legally entitled to accrued interest plus principal we discuss the implications of this fact for pricing second it is necessary to keep track of two probability measures the martingale probability for pricing and the natural probability for value at risk we discuss the benefits of keeping track of these two measures

credit derivatives with multiple debt issues abstract we evaluate the most actively traded types of credit derivatives within a unified pricing framework that allows for multiple debt issues since firms default on all of their obligations total debt is instrumental in the likelihood of default and therefore in credit derivatives valuation we use a single factor interest rate model where the exponential default frontier is based on total debt and is made coherent with observed bond prices analytical formulae are derived for credit default swaps total return swaps both fixed for fixed and fixed for floating and credit risk options cros price behaviors and hedging properties of all these credit derivatives are investigated simulations document that credit derivatives prices may be significantly affected by terms of debt other than those of the reference obligation the analysis of cros indicates their superior ability to fine tune the hedging of magnitude and arrival risks of default

pricing derivatives on financial securities subject to credit risk this article provides a new methodology for pricing and hedging derivative securities involving credit risk two types of credit risks are considered the first is where the asset underlying the derivative security may default the second is where the writer of the derivative security may default we apply the foreign currency analogy of jarrow and turnbull 1991 to decompose the dollar payoff from a risky security into a certain payoff and a spot exchange rate arbitrage free valuation techniques are then employed this methodology can be applied to corporate debt and over the counter derivatives such as swaps and caps the purpose of this article is to provide a new theory for pricing and hedging derivative securities involving credit risk two sources of credit risk are identified and analyzed the first is where the asset underlying the derivative security may default paying off less than promised this is the case for example with imbedded options on corporate debt the second is the credit risk introduced by the writer of the derivative security who may also default examples include over the counter writers of options on eurodollar futures swaps and swaptions for pricing derivative securities involving credit risk there are currently two approaches the first views these derivatives as contingent claims not on the financial securities themselves but as compound options on the assets underlying the financial securities this is the case for example with the pricing of imbedded options on corporate debt see merton 1974 1977 black and cox 1976 ho and singer 1982 chance 1990 and kim ramaswamy and sundaresan 1993 or the pricing of vulnerable options see johnson and stulz 1987 in practice however this valuation methodology is difficult to use first the assets underlying the financial security are often not tradeable and therefore their values are not observable this makes application of the theory and estimation of the relevant parameters problematic second as in the case of corporate debt all of the other liabilities of the firm senior to the corporate debt must first and simultaneously be valued this generates significant computational difficulties as a result this approach has not

heterogeneous effect of coinsurance rate on healthcare expenditure generalized finite mixtures and matching estimators the article proposes a combination of finite mixture models and matching estimators to account for heterogeneous and nonlinear effects of the coinsurance rate on healthcare expenditure the analysis with panel data for adult japanese consumers in 2008 2010 and for female consumers in 2000 2010 demonstrates the presence of subpopulations with high medium and low healthcare expenditure and subpopulation membership is explained by lifestyle variables generalized finite mixtures provide adequate fit compared to loglinear model conditional average treatment effect estimations reveal the existence of nonlinear effects of the coinsurance rate in the subpopulation with high expenditure

incentive and selection effects of medigap insurance on inpatient care the medicare program which provides insurance coverage to the elderly in the united states does not protect them fully against high out of pocket costs for this reason private supplementary insurance named medigap has been available to cover medicare gaps this paper studies how medigap affects the utilization of inpatient care separating the incentive and selection effects of supplementary insurance for this purpose we use two alternative estimation methods a standard recursive bivariate probit and a discrete multivariate finite mixture model we find that estimated incentive effects are modest and quite similar across models there seems to be very significant selection with the presence of both adversely and advantageously selected individuals stemming from the multidimensional nature of residual heterogeneity

modelling bivariate count distributions with finite mixture models application to health care demand of married couples count measures of health care utilization are often correlated with other measures of utilization in addition utilization measures display a high proportion of zero observations this article attempts to accommodate both data features in one model with an application to medical care usage of husbands and wives a bivariate count representation is used to model dependence between husbands and wives utilizations and a finite mixture specification accommodates the problem of excess zeros results show that married couples are characterized by two distinct subpopulations according to the intensity of utilization of the wife

is low priced primary care bad for quality evidence from australian general practice we examine whether patients perceptions of general practitioner gp care varies by the price paid for consultations australian consumer survey data from 2275 individuals were used to analyse the relationship between price and patient experience of gp care using both standard models for count data and a latent class model that distinguishes between patients with high and low quality experiences we find no evidence that lower prices have a negative impact on patients perceptions of gp quality nevertheless some patient characteristics such as age gender and health status play a significant role in quality of care perceptions the results show that australian patients have not had to compromise gp quality as expressed in terms of patient experience when seeking low priced care this supports the view that there are sufficient checks and balances on the gp sector in australia to ensure positive patient experiences even for low cost gp consultations

pricing interest rate options in a two factor cox ingersoll ross model of the term structure solutions are presented for prices on interest rate options in a two factor version of the cox ingersoll ross model of the term structure specific solutions are developed for caps on floating interest rates and for european options on discount bonds coupon bonds coupon bond futures and euro dollar futures the solutions for the options are expressed as multivariate integrals and we show how to reduce the calculations to univariate numerical integrations which can be calculated very quickly the two factor model provides more flexibility in fitting observed term structures and the fixed parameters of the model can be set to capture the variability of the term structure over time article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

a comparison of alternative models for the demand for medical care we have tested alternative models of the demand for medical care using experimental data the estimated response of demand to insurance plan is sensitive to the model used we therefore use a split sample analysis and find that a model that more closely approximates distributional assumptions and uses a nonparametric retransformation factor performs better in terms of mean squared forecast error simpler models are inferior either because they are not robust to outliers e g anova anocova or because they are inconsistent when strong distributional assumptions are violated e g a two parameter box cox transformation

a nonparametric vs latent class model of general practitioner utilization evidence from canada abstract predicting health care utilization is the foundation of many health economics analyses such as calculating risk adjustment capitation payments or measuring equity in health care utilization the most common econometric models of physician utilization are parametric count data models since the most common metric of physician utilization is the number of physician visits this paper makes two distinct contributions to the literature analyzing gp utilization i it is the first to use a nonparametric kernel conditional density estimator to model gp utilization and compare the predicted utilization with that from a latent class negative binomial model and ii it uses panel data to control for the potential endogeneity between self reported health status and the number of gp visits the goodness of fit results show the kernel conditional density estimator provides a better fit to the observed distribution of gp visits than the latent class negative binomial model there are some meaningful differences in how the predicted conditional mean number of gp visits changes with a change in an individual s characteristics called the incremental effect ie between the kernel conditional density estimator and the latent class negative binomial model the most notable differences are observed in the right tail of the distribution where the ies from the latent class negative binomial model are up to 190 times the magnitude of the ies from the kernel conditional density estimator

default risk in a market model abstract this paper presents a theoretical model of default risk in the context of the market model approach to interest rate dynamics we propose a model for finite interval interest rates such as libor which explicitly takes into account the possibility of default through the influence of a point process with deterministic intensity we relate the defaultable interest rate to the non defaultable interest rate and to the credit risk characteristics default intensity and recovery rate we find that the spread between defaultable and non defaultable rate depends on the non defaultable rate even when the default intensity is deterministic prices of a cap on the defaultable rate and of a credit spread option are derived we consider swaps with unilateral and bilateral default risk and derive the fair fixed swap rate in both cases under the condition that both counterparties are of the same risk class we show that for a monotonously increasing term structure the swap rate for a defaultable swap will lie below the swap rate for a swap without default risk

pricing interest rate derivative securities this article shows that the one state variableinterest rate models of vasicek 1977 and cox ingersoll and ross 1985b can be extended sothat they are consistent with both the current termstructure of interest rates and either the currentvolatilities of all spot interest rates or the currentvolatilities of all forward interest rates theextended vasicek model is shown to be very tracta ble analytically the article compares option pricesobtained using the extended vasicek model withthose obtained using a number of other models