Related papers: Counterparty risk valuation for CDS
In this three-part series of papers, we argue that the conventional spread measures are not well defined for credit-risky bonds and introduce a set of credit term structures which correct for the biases associated with the strippable cash…
We develop a pricing model for Sovereign Contingent Convertible bonds (S-CoCo) with payment standstills triggered by a sovereign's Credit Default Swap (CDS) spread. We model CDS spread regime switching, which is prevalent during crises, as…
We introduce a model for the loss distribution of a credit portfolio considering a contagion mechanism for the default of names which is the result of two independent components: an infection attempt generated by defaulting entities and a…
We consider a class of queries called durability prediction queries that arise commonly in predictive analytics, where we use a given predictive model to answer questions about possible futures to inform our decisions. Examples of…
This paper discusses the valuation of credit default swaps, where default is announced when the reference asset price has gone below certain level from the last record maximum, also known as the high-water mark or drawdown. We assume that…
The role of collateral in derivative pricing has evolved beyond credit risk mitigation, particularly following the global financial crisis, when funding costs and basis spreads became central to valuation practices. This development…
In this paper we present a Bayesian competing risk proportional hazards model to describe mortgage defaults and prepayments. We develop Bayesian inference for the model using Markov chain Monte Carlo methods. Implementation of the model is…
We give a comprehensive review of credit term structure modeling methodologies. The conventional approach to modeling credit term structure is summarized and shown to be equivalent to a particular type of the reduced form credit risk model,…
Recently, there has been a growing interest in network research, especially in these fields of biology, computer science, and sociology. It is natural to address complex financial issues such as the European sovereign debt crisis from the…
This paper studies the valuation of a class of default swaps with the embedded option to switch to a different premium and notional principal anytime prior to a credit event. These are early exercisable contracts that give the protection…
The discrete time risk model with two seasons and dependent claims is considered. An algorithm is created for computing the values of the ultimate ruin probability. Theoretical results are illustrated with numerical examples.
We consider the problem of estimating the counterfactual joint distribution of multiple quantities of interests (e.g., outcomes) in a multivariate causal model extended from the classical difference-in-difference design. Existing methods…
Under the International Financial Reporting Standards (IFRS) 9, credit losses ought to be recognised timeously and accurately. This requirement belies a certain degree of dynamicity when estimating the constituent parts of a credit loss…
Parastatistic distribution of a total debt owed to a large number of creditors considered in relation to the duration of these debts. The process of debt calculation depends on the fractal dimension of economic system in which this process…
Evaluation of counterfactual queries (e.g., "If A were true, would C have been true?") is important to fault diagnosis, planning, and determination of liability. In this paper we present methods for computing the probabilities of such…
A new methodology for incorporating LGD correlation effects into the Basel II risk weight functions is introduced. This methodology is based on modelling of LGD and default event with a single loss variable. The resulting formulas for…
We introduce a novel class of bivariate common-shock discrete phase-type (CDPH) distributions to describe dependencies in loss modeling, with an emphasis on those induced by common shocks. By constructing two jointly evolving terminating…
Diffusion in a linear potential in the presence of position-dependent killing is used to mimic a default process. Different assumptions regarding transport coefficients, initial conditions, and elasticity of the killing measure lead to…
Set-valued risk measures on $L^p_d$ with $0 \leq p \leq \infty$ for conical market models are defined, primal and dual representation results are given. The collection of initial endowments which allow to super-hedge a multivariate claim…
A standard quantitative method to access credit risk employs a factor model based on joint multivariate normal distribution properties. By extending a one-factor Gaussian copula model to make a more accurate default forecast, this paper…