Related papers: Defining, Estimating and Using Credit Term Structu…
Convexity and quasiconvexity are two properties that capture the concept of diversification for risk measures. Between the two, there is natural quasiconvexity, an old but not so well-known property weaker than convexity but stronger than…
CDS (credit default swap) contracts that were initiated some time ago frequently have spreads and/or maturities that are not available on the current market of CDSs, and are thus illiquid. This article introduces an incomplete-market…
Much research in systemic risk is focused on default contagion. While this demands an understanding of valuation, fewer articles specifically deal with the existence, the uniqueness, and the computation of equilibrium prices in structural…
Recently, incomplete-market techniques have been used to develop a model applicable to credit default swaps (CDSs) with results obtained that are quite different from those obtained using the market-standard model. This article makes use of…
With negative growth in real production in many countries and debt levels which become an increasing burden on developed societies, the calls for a change in economic policy and even the monetary system become louder and increasingly…
In this paper, we develop a novel unified methodology for performance and robustness analysis of linear dynamical networks. We introduce the notion of systemic measures for the class of first--order linear consensus networks. We classify…
The instability of historical risk factor correlations renders their use in estimating portfolio risk extremely questionable. In periods of market stress correlations of risk factors have a tendency to quickly go well beyond estimated…
In the present paper we fill an essential gap in the Convertible Bonds pricing world by deriving a Binary Tree based model for valuation subject to credit risk. This model belongs to the framework known as Equity to Credit Risk. We show…
Due to the lack of reliable market information, building financial term-structures may be associated with a significant degree of uncertainty. In this paper, we propose a new term-structure interpolation method that extends classical spline…
We consider a structural credit model for a large portfolio of credit risky assets where the correlation is due to a market factor. By considering the large portfolio limit of this system we show the existence of a density process for the…
The Convolution and Master equations governing the time behavior of the term structure of Interest Rates are set up both for continuous variables and for their discretised forms. The notion of Seed is introduced. The discretised theoretical…
We introduce a dynamic and stochastic interbank model with an endogenous notion of distress contagion, arising from rational worries about future defaults and ensuing losses. This entails a mark-to-market valuation adjustment for interbank…
Quantifying how distinguishable two stochastic processes are lies at the heart of many fields, such as machine learning and quantitative finance. While several measures have been proposed for this task, none have universal applicability and…
We investigate to which extent the relevant features of (static) Systemic Risk Measures can be extended to a conditional setting. After providing a general dual representation result, we analyze in greater detail Conditional Shortfall…
Dispersive sum rules constitute long-standing tools for extracting hadron features from QCD. We estimate the systematic uncertainties induced by assuming quark-hadron duality and improve the accuracy of the resulting predictions by…
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.…
Uncertainty is prevalent in engineering design, data-driven problems, and decision making broadly. Due to inherent risk-averseness and ambiguity about assumptions, it is common to address uncertainty by formulating and solving conservative…
In this paper monetary risk measures that are positively superhomogeneous, called star-shaped risk measures, are characterized and their properties studied. The measures in this class, which arise when the controversial subadditivity…
The paper analyzes the mathematics of the relationship between the default risk and yield-to-maturity of a coupon bond. It is shown that the yield-to-maturity is driven not only by the default probability and recovery rate of the bond but…
In this paper, we employ Credit Default Swaps (CDS) to model the joint and conditional distress probabilities of banks in Europe and the U.S. using factor copulas. We propose multi-factor, structured factor, and factor-vine models where the…