Risk Management
This article gives a probabilistic overview of the widely used method of default probability estimation proposed by K. Pluto and D. Tasche. There are listed detailed assumptions and derivation of the inequality where the probability of…
Stablecoins have turned out to be the "killer" use case of the growing digital asset space. However, risk management frameworks, including regulatory ones, have been largely absent. In this paper, we address the critical question of…
Motivated by the equations of cross valuation adjustments (XVAs) in the realistic case where capital is deemed fungible as a source of funding for variation margin, we introduce a simulation/regression scheme for a class of anticipated…
Previous work suggests that the charter value hypothesis is theoretically grounded and empirically supported, but not universally. Accordingly, this paper aims to perform an analysis of the relations between charter value, risk taking, and…
Telecom industry is significantly evolving all over the globe than ever. Mobile users number is increasing remarkably. Telecom operators are investing to get more users connected and to improve user experience, however, they are facing…
Exposure simulations are fundamental to many xVA calculations and are a nested expectation problem where repeated portfolio valuations create a significant computational expense. Sensitivity calculations which require shocked and unshocked…
This paper introduces a credit risk rating model for credit risk assessment in quantitative finance, aiming to categorize borrowers based on their behavioral data. The model is trained on data from Experian, a widely recognized credit…
Credit risk stress testing has become an important risk management device which is used both by banks internally and by regulators. Stress testing is complex because it essentially means projecting a bank's full balance sheet conditional on…
Predicting the bankruptcy risk of small and medium-sized enterprises (SMEs) is an important step for financial institutions when making decisions about loans. Existing studies in both finance and AI research fields, however, tend to only…
Risk measures satisfying the axiom of comonotonic additivity are extensively studied, arguably because of the plethora of results indicating interesting aspects of such risk measures. Recent research, however, has shown that this axiom is…
We present a statistical test that can be used to verify supervisory requirements concerning overlapping time windows for the long-term calibration in rating systems. In a first step, we show that the long-run default rate is approximately…
We derive new approximations for the Value at Risk and the Expected Shortfall at high levels of loss distributions with positive skewness and excess kurtosis, and we describe their precisions for notable ones such as for exponential, Pareto…
The assessment of risk based on historical data faces many challenges, in particular due to the limited amount of available data, lack of stationarity, and heavy tails. While estimation on a short-term horizon for less extreme percentiles…
Machine Learning has invariantly found its way into various Credit Risk applications. Due to the intrinsic nature of Credit Risk, quantifying the uncertainty of the predicted risk metrics is essential, and applying uncertainty-aware deep…
This paper studies an optimal insurance contracting problem in which the preferences of the decision maker given by the sum of the expected loss and a convex, increasing function of a deviation measure. As for the deviation measure, our…
The issue related to the quantification of the tail risk of cryptocurrencies is considered in this paper. The statistical methods used in the study are those concerning recent developments in Extreme Value Theory (EVT) for weakly dependent…
In Mozambique there is no evidence of a bankruptcy prediction model developed in the national economic context, yet, back in 2016, the national banking sector suffered a financial shock that resulted in Mozambique Central Bank intervention…
This study delves into the intricate realm of risk evaluation within the domain of specific financial derivatives, notably options. Unlike other financial instruments, like bonds, options are susceptible to broader risks. A distinctive…
In recent years, it has become apparent that an isolated microprudential approach to capital adequacy requirements of individual institutions is insufficient. It can increase the homogeneity of the financial system and ultimately the cost…
Copulas are widely used in financial economics as well as in other areas of applied mathematics. Yet, there is much arbitrariness in their choice. The author proposes "a natural copula" concept, which minimizes Wasserstein distance between…