Related papers: Multiple defaults and contagion risks
This paper develops the Jungle model in a credit portfolio framework. The Jungle model is able to model credit contagion, produce doubly-peaked probability distributions for the total default loss and endogenously generate quasi phase…
We study a continuous-time portfolio choice problem for an investor whose state-dependent preferences are determined by an exogenous factor that evolves as an It\^o diffusion process. Since risk attitudes at the end of the investment…
We investigate the optimal investment-reinsurance problem for insurance company with partial information on the market price of the risk. Through the use of filtering techniques we convert the original optimization problem involving…
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,…
We investigate under which conditions a single simulation of joint default times at a final time horizon can be decomposed into a set of simulations of joint defaults on subsequent adjacent sub-periods leading to that final horizon. Besides…
We introduce a new approach to modeling uncertainty based on plausibility measures. This approach is easily seen to generalize other approaches to modeling uncertainty, such as probability measures, belief functions, and possibility…
The global crisis of 2008 provoked a heightened interest among scientists to study the phenomenon, its propagation and negative consequences. The process of modelling the spread of a virus is commonly used in epidemiology. Conceptually, the…
In this paper, we consider the robust optimal reinsurance investment problem of the insurer under the $\alpha$-maxmin mean-variance criterion in the defaultable market. The financial market consists of risk-free bonds, a stock and a…
Risks threatening modern societies form an intricately interconnected network that often underlies crisis situations. Yet, little is known about how risk materializations in distinct domains influence each other. Here we present an approach…
This work has the objective of estimating default probabilities and correlations of credit portfolios given default rate information through a Bayesian framework using Stan. We use Vasicek's single factor credit model to establish the…
In this paper, we introduce a model that adds a non-linearity to discounting: the discounting factor may depend on the notional (i.e., discounted values are no longer linear in the notional). In the first part of the paper, we provide a…
This paper studies an optimal investment and risk control problem for an insurer with default contagion and regime-switching. The insurer in our model allocates his/her wealth across multi-name defaultable stocks and a riskless bond under…
We introduce a class of dependence structures, that we call the Multiple Risk Factor (MRF) dependence structures. On the one hand, the new constructions extend the popular CreditRisk+ approach, and as such they formally describe default…
We analyze the fluctuation of the loss from default around its large portfolio limit in a class of reduced-form models of correlated firm-by-firm default timing. We prove a weak convergence result for the fluctuation process and use it for…
This paper studies the pricing and hedging of derivatives in frictionless and competitive, but incomplete jump-diffusion markets. A unique equivalent martingale measure (EMM) is obtained using filtration reduction to a fictitious complete…
A new procedure is presented for the objective comparison and evaluation of default definitions. This allows the lender to find a default threshold at which the financial loss of a loan portfolio is minimised, in accordance with Basel II.…
We propose two structural models for stochastic losses given default which allow to model the credit losses of a portfolio of defaultable financial instruments. The credit losses are integrated into a structural model of default events…
In this paper we give a financial justification, based on non arbitrage conditions, of the $(H)$ hypothesis in default time modelling. We also show how the $(H)$ hypothesis is affected by an equivalent change of probability measure. The…
Trading activities in financial systems create various channels through which systemic risk can propagate. An important contagion channel is financial fire sales, where a bank failure causes asset prices to fall due to asset liquidation,…
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…