‘Spirit consonance engendering a sense of life’ (Qi Yun Sheng Dong) as the first law of Chinese painting, originally proposed by Xie He (active 500–535?) in his six laws of painting, has been commonly echoed by numerous later Chinese artists up to this day. Tracing back the meaning of each character of ‘Qi Yun Sheng Dong’ from Pre-Qin up to the Six Dynasties, along with a comparative analysis on the renderings of ‘Qi Yun Sheng Dong’ by experts in Western academia, (...) I establish ‘spirit consonance’ as the rendering of ‘Qi Yun’. By examining texts on painting by significant critics in Chinese art history, and by referring to specific works by painters from the Six Dynasties up to the Yuan Dynasty, I present the merits and demerits of the different interpretations by Western experts, and explore the essence of ‘Qi Yun’. Once the painter successfully captures ‘spirit consonance’ as the essential character or ‘internal reality’ of the object, and transmits it into the work, ‘Qi Yun’ further implies the expressive quality of the work beyond formal representation. Additionally, the fusion of expressive and representative functions also leaves space for further explaining the aesthetic interaction among artist, object, work, and audience. From the Six Dynasties onwards, Chinese painters have practised the expressive pursuit beyond epresentation on the basis of the unification of ‘Qi Yun’ (spirit consonance) and formal representation, although spirit consonance was valued more highly than formal likeness. (shrink)

Ratio, Volume 34, Issue 4, Page 303-311, December 2021.

This paper presents a Least Square Monte Carlo approach for accurately calculating credit value adjustment (CVA). In contrast to previous studies, the model relies on the probability distribution of a default time/jump rather than the default time itself, as the default time is usually inaccessible. As such, the model can achieve a high order of accuracy with a relatively easy implementation. We find that the valuation of a defaultable derivative is normally determined via backward induction when their payoffs could be (...) positive or negative. Moreover, the model can naturally capture wrong or right way risk. (shrink)

Xunzi’s pessimistic understanding of human nature and his endorsement of the intrinsically valuable virtue of yi (義) put him in a vulnerable position. To defend this position, Xunzi needs to conquer what the essay calls “the compatibility problems,” the first of which concerns the compatibility between bad human nature and virtue, while the second is between Xunzi’s functional understanding of virtue and his understanding of virtue as possessing intrinsic value. If Xunzi’s moral philosophy were to fail to solve these two (...) problems, it would be guilty of inconsistency. In reconstructing a genealogy of Xunzi’s philosophy, I argue that he can successfully resolve the two compatibility problems, and his genealogy perspicuously shows that virtue can grow out of vicious human nature. (shrink)

This paper attempts to assess the economic significance and implications of collateralization in different financial markets, which is essentially a matter of theoretical justification and empirical verification. We present a comprehensive theoretical framework that allows for collateralization adhering to bankruptcy laws. As such, the model can back out differences in asset prices due to collateralized counterparty risk. This framework is very useful for pricing outstanding defaultable financial contracts. By using a unique data set, we are able to achieve a clean (...) decomposition of prices into their credit risk factors. We find empirical evidence that counterparty risk is not overly important in credit-related spreads. Only the joint effects of collateralization and credit risk can sufficiently explain unsecured credit costs. This finding suggests that failure to properly account for collateralization may result in significant mispricing of financial contracts. We also analyze the difference between cleared and OTC markets. (shrink)

A longstanding orthodoxy holds that the Mohists regard the promotion of li (benefit, 利) as their ultimate normative criterion, meaning that they measure what is yi (just, 義) or buyi (unjust, 不義) depending on whether it maximizes li or not. This orthodoxy dates back at least to Joseph Edkins (1859), who saw Mozi as a utilitarian and an ally of Bentham. In this paper, we will argue that this orthodoxy should be reconsidered because it does not square with several passages (...) from the Mozi. That the Mohists place a strong weight on the promotion of ‘li for the whole world (tianxia zhi li, 天下之利)’ is uncontroversial. We argue, however, that in certain cases the Mohist moral calculus diverges in its rationale or outcome from li-promotionalism. This position rejects the orthodoxy by showing that Mohism and li-promotionalism are not entirely coterminous. (shrink)

This article presents a comprehensive framework for valuing financial instruments subject to credit risk. In particular, we focus on the impact of default dependence on asset pricing, as correlated default risk is one of the most pervasive threats in financial markets. We analyze how swap rates are affected by bilateral counterparty credit risk, and how CDS spreads depend on the trilateral credit risk of the buyer, seller, and reference entity in a contract. Moreover, we study the effect of collateralization on (...) valuation, since the majority of OTC derivatives are collateralized. The model shows that a fully collateralized swap is risk-free, whereas a fully collateralized CDS is not equivalent to a risk-free one. (shrink)

This article offers a critical overview of a set of normative theories, namely Tianxia 天下 (all-under-heaven), whose purpose is to provide a renewed conceptual framework for the improvement of the world system. First, the article introduces the origins, main features, and differences within Tianxia, before discussing two major criticisms leveled against it. The article then argues that the most powerful parts of these criticisms come from the challenges posed against Tianxia’s legitimacy. The article elaborates on this and introduces two additional (...) challenges of the same kind which were not discussed before. While the article leaves open the question of whether Tianxia is a realistic utopia, it insists that meaningful discussion of Tianxia must take legitimacy challenges seriously. It ends with a discussion concerning whether China can be understood as a civilization-state and how this understanding affects Tianxia’s reception as a realistic utopia. (shrink)

The article explores the inner logic and defining features of Daoist freedom. It argues that Daoist freedom can be meaningfully understood as psychological hygiene, and it suggests that Daoist xuan-jie (懸解) can be rendered possible only if one can rid oneself of intensional suffering—an idea ultimately inspired by Friedrich Nietzsche. This comparative approach enables the article to contribute to the received way of understanding Daoist freedom by stressing its dialectics: by being at ease with one’s social and political environment, Daoist (...) freedom demands social criticism, calling for room for people to be able to act spontaneously so that all can nurture their distinctive natures and have a full and free exercise of their natural abilities. The article aims to achieve two objectives at once: it aims to argue for the understanding of Daoist freedom as psychological hygiene, and it defends this reading by bringing two dimensions of Daoist freedom into a consistent whole. In a constantly changing and increasingly pluralistic world, psychological hygiene and social criticism are both necessary for leading a robust and healthy human life. (shrink)

In lieu of Abstract: With inequality of various sorts ballooning worldwide, a critique of democracy has come of age, and a change of political ethos is underway. Against this background, the critique of democracy becomes not only possible but also popular, and examples in China and many Western democracies abound. It is no exaggeration to say, in this context, that sufficient momentum has gathered to qualify the situation as "democratic recession," despite people may have different understandings as to the exact (...) nature of this recession and how long it will last. Accompanying this recession, Confucian political meritocracy, whose aim is to correct the wrongs of democracy, is constructed as an alternative to liberal democracy. Many argue that the end of history is not nigh but will continue in and by Confucian political meritocracy... (shrink)

The incremental risk charge (IRC) is a new regulatory requirement from the Basel Committee in response to the recent financial crisis. Notably few models for IRC have been developed in the literature. This paper proposes a methodology consisting of two Monte Carlo simulations. The first Monte Carlo simulation simulates default, migration, and concentration in an integrated way. Combining with full re-valuation, the loss distribution at the first liquidity horizon for a subportfolio can be generated. The second Monte Carlo simulation is (...) the random draws based on the constant level of risk assumption. It convolutes the copies of the single loss distribution to produce one year loss distribution. The aggregation of different subportfolios with different liquidity horizons is addressed. Moreover, the methodology for equity is also included, even though it is optional in IRC. (shrink)

The one-side defaultable financial derivatives valuation problems have been studied extensively, but the valuation of bilateral derivatives with asymmetric credit qualities is still lacking convincing mechanism. This paper presents an analytical model for valuing derivatives subject to default by both counterparties. The default-free interest rates are modeled by the Market Models, while the default time is modeled by the reduced-form model as the first jump of a time-inhomogeneous Poisson process. All quantities modeled are market-observable. The closed-form solution gives us a (...) better understanding of the impact of the credit asymmetry on swap value, credit value adjustment, swap rate and swap spread. (shrink)

This article presents a new model for valuing financial contracts subject to credit risk and collateralization. Examples include the valuation of a credit default swap (CDS) contract that is affected by the trilateral credit risk of the buyer, seller and reference entity. We show that default dependency has a significant impact on asset pricing. In fact, correlated default risk is one of the most pervasive threats in financial markets. We also show that a fully collateralized CDS is not equivalent to (...) a risk-free one. In other words, full collateralization cannot eliminate counterparty risk completely in the CDS market. (shrink)

Reluctance to adopt mask-wearing as a preventive measure is widely observed in many Western societies since the beginning of the COVID-19 pandemics. This reluctance toward mask adoption, like any other complex social phenomena, will have multiple causes. Plausible explanations have been identified, including political polarization, skepticism about media reports and the authority of public health agencies, and concerns over liberty, amongst others. In this paper, we propose potential explanations hitherto unnoticed, based on the framework of epistemic injustice. We show how (...) testimonial injustice and hermeneutical injustice may be at work to shape the reluctant mask adoption at both the societal and individual levels. We end by suggesting how overcoming these epistemic injustices can benefit the global community in this challenging situation and in the future. (shrink)

Contextualist accounts of “woman,” including Saul (2012), Diaz-Leon (2016), and Ichikawa (2020), aim to capture the variability of the meaning of the term, and do justice to the rights of trans women. I argue that (i) there is an internal tension between a contextualist stance and the commitment to trans-inclusive language, and that (ii) we should recognize and tackle the broader and deeper theoretical and practical difficulties implicit in the semantic debates, rather than collapsing them all into semantics. Moving on, (...) I sketch three strategies to help us advance feminist philosophical endeavors, including how attending to contextual matters can lead us to further reflect on the meta-contextual, such as our role in shaping contexts and whether the working of language is indicative of a larger oppressive social structure. (shrink)

What is gender and on what should gender classification be based? Dembroff (2018) has recently claimed that, for reasons of social justice, gender classification should not track extant gender kinds. They further argue for ontological pluralism—the existence of many gender kinds, and recommend that we combat oppression by imitating the gender kinds and classification practices in non-oppressive communities. Contra Dembroff, I argue that the analysis is subject to a number of internal problems, including a misguided self-characterization and a tension between (...) ontological pluralism and imitation. In addition, I sketch a different perspective on the relation between gender kinds and gender classification practices that upholds Dembroff’s intended goal but ameliorates the unintended complications. (shrink)

Objectives: The growing rate of retraction of scientific publications has attracted much attention within the academic community, but there is little knowledge about the nature of such retractions in schizophrenia-related research. This study aimed to analyze the characteristics of retractions of schizophrenia-related publications.

Chinese international students who studied in the United States received “double stigmatization” from American and Chinese authorities because of the “political othering” tactic during COVID-19. The research used a phenomenological approach to examine why and how specifically the transnational identity of Chinese international students in the United States shifted during the double stigmatization. The researcher conducted a total of three rounds of interviews with 15 Chinese international students who studied in the United States and returned to China between 2018 and (...) 2020, which culminated in 45 interviews through a longitudinal study to probe the transnational identities of this population before and during the double stigmatization; the study also examined how the mindsponge mechanism worked during the identity shifts and the interplay among stigmatization, transnational identity shifts, and the mindsponge mechanism. The study concluded that before COVID-19, Chinese international students had been stigmatized in both China and the United States. (shrink)

Ang papel ay paglalagom ng itinuturing na pinakamahalagang yugto ng buhay ni José Rizal—ang kanyang pagkakatapon sa Dapitan, sa lente ng konseptong “bagani” ng ating mga ninuno. Sa pagbanggit sa lang nauna nang pag-aaral ukol kay Rizal, ipapakitang kung papaanong ang yugto sa Dapitan ay ang katuparan ng kanyang mga layunin sa La Liga Filipina, na kanyang isinabuhay kasama ang bayan. Sa lente ng kasalukuyang pandemyang COVID 19, makikita natin na tila naranasan din ni Rizal sa kanyang pagkakatapon ang ilang (...) bagay na ating dinaranas ngayon, na tila siya isang frontliner na nasa lockdown, inilagay sa kuwarentena, nag-homeschooling, nagkaroon ng lockdown sickness at namahagi ng ayudang pangkabuhayan sa mga mamamayan ng isang natutulog na bayan upang ito ay sumiglang muli. Nawa ay maging inspirasyon sa bayan na anuman ang hamon at mga balakid, walang makapipigil sa isang Pilipino na magsilbi sa bayan gamit ang kanyang mga talento at manatiling liwanag ng katotohanan at kaalaman. (shrink)

Bishop sentences such as “If a bishop meets a bishop, he blesses him” have long been considered problematic for the descriptivist (or E-type) approach of donkey anaphora (e.g. Evans, 1977; Heim, 1990; and Neale, 1990). Elbourne (2005) offers a situational descriptivist analysis that allegedly solves the problem, and furthermore extends its explanatory coverage to bishop sentence with coordinate subjects. However, I throw serious doubts on Elbourne’s analysis. Specifically, I argue that the purported solution is committed to the use of unbound (...) anaphora, and it cannot sustain the claimed empirical adequacy. (shrink)

This chapter addresses the assumed connection between de se attitude ascription and logophoricity in the case of Chinese ziji. It is widely believed that logophors are among the paradigm cases of de se marking, and that long-distance ziji is logophoric. Drawing on a critical examination of a variety of analyses, this chapter argues that long-distance anaphora, de se interpretation, and logophoric marking are overlapping but distinct phenomena. Even if ziji is logophoric, it does not automatically trigger de se requirement. A (...) de se-neutral analysis of ziji is consistent with pragmatic derivations of interpretations that emphasize the self. The findings point to a new approach to long-distance binding, and identify the blocking effect as the key issue for further research. (shrink)

The phenomenon of intentional identity has bemused philosophical communities since Geach (1967). I argue that the phenomenon is ubiquitous and much more significant than previously acknowledged. The foundations of the problem are implicated in many other well-knownpuzzles, such as Kripke’s (1979) puzzles about beliefs. Thus, the need for a proper analysis is eminently pressing. I specify a template for generalizing intentional identity, identify the challenges involved, and argue that positing a level of representational entity in both philosophy of mind and (...) language(e.g., mental files) is a promising approach to tackling the problem across the board. (shrink)

I argues that quantificational adverbs are unselective binders over individuals. The Lewisian analysis, however, fails to recognize the ambiguity in some quantificationally modified conditionals. That the Lewisian approach cannot predict some attested reading is known as the “proportion problem.” I propose a solution based on the following ideas: (a) quantificational adverbs bind selectively; (b) a singular indefinite and its anaphoric pronoun may introduce a plural discourse referent, and (c) plural predication is elusive.

A combinatorial analysis of intrinsicality takes intrinsic properties to be independent of accompaniment: a property is intrinsic only if it is possible for a lonely or an accompanied thing to have it or lack it (I). Cameron argues that the combinatorial analysis in Langton & Lewis (1998) faces an epistemic circularity, which makes (I) suspicious. In this paper, I examine two approaches to free the combinatorial analyses from the circularity and find them all fail. Then I provide an outline of (...) an argument for (I) by appealing to the grounding analyses of intrinsicality, which shows an advantage of the grounding analyses over the combinatorial ones. (shrink)

With self-determination as its implication, freedom can create room for such psychological mechanism as internalization to perform the function of transforming the external social regulation into self-regulation. For this transformation to be viable, however, subject needs to be formed and subsequently social regulation becomes redundant, thanks to the formation of subject. Freedom as a necessary condition for the subject formation and this transfiguration of social regulation is often neglected in favor of social order. Drawing on various intellectual resources, this article (...) explores the inner logic and consequence of Legalism, in its segregation of politics (social order) and morality. (shrink)

Both motivational internalism and externalism need to explain why sometimes moral judgments tend to motivate us. In this paper, I argue that Dreier’ second-order desire model cannot be a plausible externalist alternative to explain the connection between moral judgments and motivation. I explain that the relevant second-order desire is merely a constitutive requirement of rationality because that desire makes a set of desires more unified and coherent. As a rational agent with the relevant second-order desire is disposed towards coherence, she (...) will have some motivation to act in accordance with her moral judgments. Dreier’s second-order desire model thus collapses into a form of internalism and cannot be a plausible externalist option to explain the connection between moral judgments and motivation. (shrink)

This paper presents a new model for pricing OTC derivatives subject to collateralization. It allows for collateral posting adhering to bankruptcy laws. As such, the model can back out the market price of a collateralized contract. This framework is very useful for valuing outstanding derivatives. Using a unique dataset, we find empirical evidence that credit risk alone is not overly important in determining credit-related spreads. Only accounting for both collateral arrangement and credit risk can sufficiently explain unsecured credit costs. This (...) finding suggests that failure to properly account for collateralization may result in significant mispricing of derivatives. We also empirically gauge the impact of collateral agreements on risk measurements. Our findings indicate that there are important interactions between market and credit risk. (shrink)

Lack of a historical sense is the hereditary defect of philosophers. … So what is needed from now on is historical philosophizing, and with it the virtue of modesty.

In this thesis, I explore motivational internalism and externalism, which concern the relationship between moral judgments and motivation. I first introduce the basic terms and different forms of internalism and externalism, including the externalist objections to internalism based on the famous counterexamples. I then argue against externalism by defending and developing Michael Smith’s fetishism argument. I not only respond to the externalist objections to the fetishism argument but also further argue against different externalist explanations of moral motivation that intend to (...) avoid the fetishism charge. Finally, I re-examine different forms of internalism in order to argue for a new form of internalism that can better preserve our internalist intuitions whilst accommodating the externalist counterexamples. My ultimate conclusion will be that the most plausible form of internalism to accept is constitutional, unconditional, relatively strong, direct internalism that is formulated in terms of dispositional desires. (shrink)

The current COVID-19 pandemic and the previous SARS/MERS outbreaks of 2003 and 2012 have resulted in a series of major global public health crises. We argue that in the interest of developing effective and safe vaccines and drugs and to better understand coronaviruses and associated disease mechenisms it is necessary to integrate the large and exponentially growing body of heterogeneous coronavirus data. Ontologies play an important role in standard-based knowledge and data representation, integration, sharing, and analysis. Accordingly, we initiated the (...) development of the community-based Coronavirus Infectious Disease Ontology in early 2020. -/- As an Open Biomedical Ontology (OBO) library ontology, CIDO is open source and interoperable with other existing OBO ontologies. CIDO is aligned with the Basic Formal Ontology and Viral Infectious Disease Ontology. CIDO has imported terms from over 30 OBO ontologies. For example, CIDO imports all SARS-CoV-2 protein terms from the Protein Ontology, COVID-19-related phenotype terms from the Human Phenotype Ontology, and over 100 COVID-19 terms for vaccines (both authorized and in clinical trial) from the Vaccine Ontology. CIDO systematically represents variants of SARS-CoV-2 viruses and over 300 amino acid substitutions therein, along with over 300 diagnostic kits and methods. CIDO also describes hundreds of host-coronavirus protein-protein interactions (PPIs) and the drugs that target proteins in these PPIs. CIDO has been used to model COVID-19 related phenomena in areas such as epidemiology. The scope of CIDO was evaluated by visual analysis supported by a summarization network method. CIDO has been used in various applications such as term standardization, inference, natural language processing (NLP) and clinical data integration. We have applied the amino acid variant knowledge present in CIDO to analyze differences between SARS-CoV-2 Delta and Omicron variants. CIDO's integrative host-coronavirus PPIs and drug-target knowledge has also been used to support drug repurposing for COVID-19 treatment. -/- CIDO represents entities and relations in the domain of coronavirus diseases with a special focus on COVID-19. It supports shared knowledge representation, data and metadata standardization and integration, and has been used in a range of applications. (shrink)

This paper presents a new anti-criterialist view, Brutal Personal Identity (BPI). According to BPI, personal identity is a quasi-fundamental fact, which is metaphysically grounded in brute facts about absolutely fundamental personhood. By reversing the order of metaphysical explanation, BPI is not a form of identity mysticism as Dean Zimmerman asserts. Instead, BPI has even the potential to lay a solid foundation for developing an appropriate account of mentality and first-person perspectives. Furthermore, a comparison between BPI and soul theory is provided (...) to show why BPI is better than its main anti-criterialist rival. This provides us a compelling reason for considering BPI in the debate over personal identity. (shrink)

Equity-linked securities with a guaranteed return become popular in a volatile market environment. This paper presents a new model for valuing guaranteed equity-linked notes. We consider a security whose value depends on the performance of a basket of equities averaged over certain points in time, but that is floored by a guaranteed amount. We show that the security’s price is given by the sum of the guaranteed amount plus the price of an Asian style option on the basket above. The (...) model provides analytical formulas for the security’s price as well as for corresponding hedge ratios; these respective formulas appear to be accurate over a wide range of underlying security parameter values, based on numerical testing against a Monte Carlo benchmark, Finally, we apply our method to value a type of segregated fund with a maturity guarantee. (shrink)

This paper explores the connections between being Chinese in various senses and the study of Chinese philosophy.

In this essay, we will follow Tang Junyi’s lead in exploring issues related to Chinese diaspora and Chinese philosophy. While we largely endorse Tang’s call for overseas Chinese to establish themselves in their adopted lands, we will argue for a more nuanced view on the identity of Chinese people outside China: they are not marginalized individuals scattered out of “homeland” China, rather they are people legitimately established in their own respective countries. In this connection, we will also advance a view (...) of future Chinese philosophy as a world philosophy that takes roots in China as well as in the world at large. In our view, although Chinese immigrant thinkers in the past century have played a major role in promoting Chinese philosophy outside China, the importance of such a role is likely to decline along with the success of Chinese philosophy becoming a world philosophy. (shrink)

Current COVID-19 pandemic and previous SARS/MERS outbreaks have caused a series of major crises to global public health. We must integrate the large and exponentially growing amount of heterogeneous coronavirus data to better understand coronaviruses and associated disease mechanisms, in the interest of developing effective and safe vaccines and drugs. Ontologies have emerged to play an important role in standard knowledge and data representation, integration, sharing, and analysis. We have initiated the development of the community-based Coronavirus Infectious Disease Ontology (CIDO). (...) As an Open Biomedical Ontology (OBO) library ontology, CIDO is an open source and interoperable with other existing OBO ontologies. In this article, the general architecture and the design patterns of the CIDO are introduced, CIDO representation of coronaviruses, phenotypes, anti-coronavirus drugs and medical devices (e.g. ventilators) are illustrated, and an application of CIDO implemented to identify repurposable drug candidates for effective and safe COVID-19 treatment is presented. (shrink)

The LIBOR Market Model has become one of the most popular models for pricing interest rate products. It is commonly believed that Monte-Carlo simulation is the only viable method available for the LIBOR Market Model. In this article, however, we propose a lattice approach to price interest rate products within the LIBOR Market Model by introducing a shifted forward measure and several novel fast drift approximation methods. This model should achieve the best performance without losing much accuracy. Moreover, the calibration (...) is almost automatic and it is simple and easy to implement. Adding this model to the valuation toolkit is actually quite useful; especially for risk management or in the case there is a need for a quick turnaround. (shrink)

This article presents a new methodology for pricing and hedging commodity derivatives. A generic model calibration is provided. The calibration procedure consists of an offline step where the mean reversion rates, the ratio of the long and short factor volatilities and the correlation between the long and short factors are determined via historical analysis. This offline step is performed relatively infrequently. There’s also an online step of the calibration which happens every time the model is used to price an option (...) or to simulate price paths. Empirical study shows that the model is quite accurate. (shrink)

During the lifetime of a structured product, payment events and cancellation events mainly affect the value of the option. This article presents a model for pricing generic cancellable option. The model is used to build most common kinds of cancellation schedules and compute the cancellation probability.

[Purposes] This paper aims to summarize the research outcome on publishing ethics of scientific journals abroad, which is expected to serve as a reference for the research on related topics in China. [Methods] Literature review method and content coding method were adopted to systematically sum up related research abroad. Then, the status quo and development trend were analyzed. [Findings] There are five main research topics: anomy of publishing ethics, elements of publishing ethics norms, status quo of publishing ethics implementation, knowledge (...) of authors and editors on publishing ethics and their attitudes, and management of publishing ethics. [Conclusions] Foreign research on publishing ethics of scientific journals has achieved fruitful results with obvious characteristics, but there is a lack of research scope definition and systematic analysis of ethical norms. Chinese scientific journals should take international research outcome as a reference and strengthen the research on ethical norms to enhance the development of publishing ethics. (shrink)

In Mental Files, Recanati proposes a non-descriptivist approach to reference in terms of mental files, mental representations that play the role of Fregean mode of presentation. Recanati argues that we refer via mental files and that the reference of a file is determined relationally, rather than satisficationally; files are not to be equated to the information they contain, but typed by their function—to store information gained through certain epistemically rewarding relation to objects in the environment. I offer a critical overview (...) of Recanati’s framework and raise two questions about the nature and workings of files. (shrink)

This paper argues that the reduced-form jump diffusion model may not be appropriate for credit risk modeling. To correctly value hybrid defaultable financial instruments, e.g., convertible bonds, we present a new framework that relies on the probability distribution of a default jump rather than the default jump itself, as the default jump is usually inaccessible. As such, the model can back out the market prices of convertible bonds. A prevailing belief in the market is that convertible arbitrage is mainly due (...) to convertible underpricing. Empirically, however, we do not find evidence supporting the underpricing hypothesis. Instead, we find that convertibles have relatively large positive gammas. As a typical convertible arbitrage strategy employs delta-neutral hedging, a large positive gamma can make the portfolio highly profitable, especially for a large movement in the underlying stock price. (shrink)