Related papers: Defining, Estimating and Using Credit Term Structu…
Regulators require financial institutions to estimate counterparty default risks from liquid CDS quotes for the valuation and risk management of OTC derivatives. However, the vast majority of counterparties do not have liquid CDS quotes and…
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…
A multi-dimensional extension of the structural default model with firms' values driven by diffusion processes with Marshall-Olkin-inspired correlation structure is presented. Semi-analytical methods for solving the forward calibration…
We establish a profound connection between coherent risk measures, a prominent object in quantitative finance, and uniform integrability, a fundamental concept in probability theory. Instead of working with absolute values of random…
This article presents a new model for valuing a credit default swap (CDS) contract that is affected by multiple credit risks of the buyer, seller and reference entity. We show that default dependency has a significant impact on asset…
This paper presents the experimental process and results of SVM, Gradient Boosting, and an Attention-GRU Hybrid model in predicting the Implied Volatility of rolled-over five-year spread contracts of credit default swaps (CDS) on European…
In this article we show how to analyze the covariation of bond prices nonparametrically and robustly, staying consistent with a general no-arbitrage setting. This is, in particular, motivated by the problem of identifying the number of…
The credit spread is a key indicator in bond investments, offering valuable insights for fixed-income investors to devise effective trading strategies. This study proposes a novel credit spread forecasting model leveraging ensemble learning…
I develop a tractable adverse-selection model comparing secured bank loans and bonds when both pledge collateral but differ in effective liquidation efficiency. A small wedge in recovery rates generates coexistence, a sharp bank-bond…
In this paper we present a rigorously motivated pricing equation for derivatives, including general cash collateralization schemes, which is consistent with quoted market bond prices. Traditionally, there have been differences in how…
Risk-neutral default probabilities can be implied from credit default swap (CDS) market quotes. In practice, mid CDS quotes are used as inputs, as their risk-neutral counterparts are not observable. We show how to imply risk-neutral default…
Signature methods have been widely and effectively used as a tool for feature extraction in statistical learning methods, notably in mathematical finance. They lack, however, interpretability: in the general case, it is unclear why…
We follow a long path for Credit Derivatives and Collateralized Debt Obligations (CDOs) in particular, from the introduction of the Gaussian copula model and the related implied correlations to the introduction of arbitrage-free dynamic…
We consider a structural model where the survival/default state is observed together with a noisy version of the firm value process. This assumption makes the model more realistic than most of the existing alternatives, but triggers…
Structural balance theory assumes triads in networks to gravitate towards stable configurations. The theory has been verified for undirected graphs. Since real-world networks are often directed, we introduce a novel method for considering…
The hypothesis that committed revolving credit lines with fixed spreads can provide firms with interest rate insurance is a standard feature of models on these credit facilities' interest rate structure. Nevertheless, this hypothesis has…
We present a new model for credit index derivatives, in the top-down approach. This model has a dynamic loss intensity process with volatility and jumps and can include counterparty risk. It handles CDS, CDO tranches, Nth-to-default and…
The LIBOR rate is currently scheduled for discontinuation, and the replacement advocated by regulators in the US is the Secured Overnight Financing Rate (SOFR). The change has the potential to disrupt the $200 trillion market of derivatives…
Finding similar bonds remains challenging in fixed-income analytics, as numerical financial attributes often overshadow categorical non-financial ones such as issuer sector and domicile. This paper shows that these categorical attributes…
In this work we derive an approximated no-arbitrage market valuation formula for Constant Maturity Credit Default Swaps (CMCDS). We move from the CDS options market model in Brigo (2004), and derive a formula for CMCDS that is the analogous…