Related papers: Modelling Bonds & Credit Default Swaps using a Str…
We address the so-called calibration problem which consists of fitting in a tractable way a given model to a specified term structure like, e.g., yield or default probability curves. Time-homogeneous jump-diffusions like Vasicek or…
We consider a financial market with zero-coupon bonds that are exposed to credit and liquidity risk. We revisit the famous Jarrow & Turnbull setting in order to account for these two intricately intertwined risk types. We utilise the…
We propose a unified structural credit risk model incorporating both insolvency and illiquidity risks, in order to investigate how a firm's default probability depends on the liquidity risk associated with its financing structure. We assume…
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…
A simple graphical model for correlated defaults is proposed, with explicit formulas for the loss distribution. Algebraic geometry techniques are employed to show that this model is well posed for default dependence: it represents any given…
In this paper we formulate a corporate bond (CB) pricing model for deriving the term structure of default probabilities (TSDP) and the recovery rate (RR) for each pair of industry factor and credit rating grade, and these derived TSDP and…
We introduce an innovative theoretical framework to model derivative transactions between defaultable entities based on the principle of arbitrage freedom. Our framework extends the traditional formulations based on Credit and Debit…
In this paper, a geometric function is introduced to reflect the attenuation speed of impact of one firm's default to its partner. If two firms are competitions (copartners), the default intensity of one firm will decrease (increase)…
Measuring the corporate default risk is broadly important in economics and finance. Quantitative methods have been developed to predictively assess future corporate default probabilities. However, as a more difficult yet crucial problem,…
In this paper we analyze the resilience of a network of banks to joint price fluctuations of the external assets in which they have shared exposures, and evaluate the worst-case effects of the possible default contagion. Indeed, when the…
In this paper, we propose a dynamical model to capture cascading failures among interconnected organizations in the global financial system. Failures can take the form of bankruptcies, defaults, and other insolvencies. The network that…
We develop a finite horizon continuous time market model, where risk averse investors maximize utility from terminal wealth by dynamically investing in a risk-free money market account, a stock written on a default-free dividend process,…
In this paper we develop structural first passage models (AT1P and SBTV) with time-varying volatility and characterized by high tractability, moving from the original work of Brigo and Tarenghi (2004, 2005) [19] [20] and Brigo and Morini…
This paper extends an option-theoretic approach to estimate liquidity spreads for corporate bonds. Inspired by Longstaff's equity market framework and subsequent work by Koziol and Sauerbier on risk-free zero-coupon bonds, the model views…
The lifetime behaviour of loans is notoriously difficult to model, which can compromise a bank's financial reserves against future losses, if modelled poorly. Therefore, we present a data-driven comparative study amongst three techniques in…
We consider the problem of modelling the term structure of defaultable bonds, under minimal assumptions on the default time. In particular, we do not assume the existence of a default intensity and we therefore allow for the possibility of…
In the aftermath of the global financial crisis, much attention has been paid to investigating the appropriateness of the current practice of default risk modeling in banking, finance and insurance industries. A recent empirical study by…
A three-dimensional simulation model is proposed here to study the erosive wear of structure caused by solid particles, which accounts for the accumulation of surface deformation and degradation during the erosion process. Although there…
In this work, a pricing model for a defaultable corporate bond with credit rating migration risk is established. The model turns out to be a free boundary problem with two free boundaries. The latter are the level sets of the solution but…
We detect the parameter sensitivities of bond pricing which is driven by a Brownian motion and a compound Poisson process as the discontinuous case in credit risk research. The strict mathematical deductions are given theoretically due to…