Related papers: Incorporating exchange rate risk into PDs and asse…
This paper presents comparison results and establishes risk bounds for credit portfolios within classes of Bernoulli mixture models, assuming conditionally independent defaults that are stochastically increasing with a common risk factor.…
Covered bonds are a specific example of senior secured debt. If the issuer of the bonds defaults the proceeds of the assets in the cover pool are used for their debt service. If in this situation the cover pool proceeds do not suffice for…
We present the qGaussian generalization of the Merton framework, which takes into account slow fluctuations of the volatility of the firms market value of financial assets. The minimal version of the model depends on the Tsallis entropic…
Multifractal detrended cross-correlation methodology is described and applied to Foreign exchange (Forex) market time series. Fluctuations of high frequency exchange rates of eight major world currencies over 2010-2018 period are used to…
The Multi Variate Mixture Dynamics model is a tractable, dynamical, arbitrage-free multivariate model characterized by transparency on the dependence structure, since closed form formulae for terminal correlations, average correlations and…
Currency crises are frequently discussed retrospectively as a necessary and deterministic outcome of a finite sequence of fiscal decisions, monetary manoeuvres, and limited exogenous inputs. Parallelly, the Twin Deficits Hypothesis (TDH)…
Mortgage default rates, on the one hand, serve as a measure of economic health to support decision-making by insurance companies, and on the other hand, is a key risk factor in the asset-liability management (ALM) practice, as mortgage…
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…
Relational arrays represent measures of association between pairs of actors, often in varied contexts or over time. Trade flows between countries, financial transactions between individuals, contact frequencies between school children in…
In general, underestimation of risk is something which should be avoided as far as possible. Especially in financial asset management, equity risk is typically characterized by the measure of portfolio variance, or indirectly by quantities…
First passage models, where corporate assets undergo a random walk and default occurs if the assets fall below a threshold, provide an attractive framework for modeling the default process. Recently such models have been generalized to…
The market practice of extrapolating different term structures from different instruments lacks a rigorous justification in terms of cash flows structure and market observables. In this paper, we integrate our previous consistent theory for…
Credit ratings are widely used by investors as a screening device. We introduce and study several natural notions of risk consistency that promote prudent investment decisions in the framework of Choquet rating criteria. Three closely…
The purpose of this study is to estimate the correlation structure between multiple assets using financial text analysis. In recent years, as the background of elevating inflation in the global economy and monetary policy tightening by…
We investigate financial market correlations using random matrix theory and principal component analysis. We use random matrix theory to demonstrate that correlation matrices of asset price changes contain structure that is incompatible…
Used to investigate the presence of distinctive recurrent behaviours in natural processes, the recurrence plots can be applied to the analysis of economic data, and, in particular, to the characterization of exchange rates of currencies…
This paper presents a new model for pricing financial derivatives subject to collateralization. It allows for collateral arrangements adhering to bankruptcy laws. As such, the model can back out the market price of a collateralized…
We analyze the practical consequences of the bilateral counterparty risk adjustment. We point out that past literature assumes that, at the moment of the first default, a risk-free closeout amount will be used. We argue that the legal…
Option written on several foreign exchange rates (FXRs) depends on correlation between the rates. To evaluate the option, historical estimates for correlations can be used but usually they are not stable. More significantly, pricing of the…
Foreign exchange rates movements exhibit significant cross-correlations even on very short time-scales. The effect of these statistical relationships become evident during extreme market events, such as flash crashes.In this scenario, an…