Related papers: A Guide to Modeling Credit Term Structures
It is well known that the Cox-Ingersoll-Ross (CIR) stochastic model to study the term structure of interest rates, as introduced in 1985, is inadequate for modelling the current market environment with negative short interest rates.…
In the aftermath of the global financial crisis, much attention has been paid to investigating the appropriateness of the current practice of default risk modeling in banking, finance and insurance industries. A recent empirical study by…
In the second part of our series we suggest new definitions of credit bond duration and convexity that remain consistent across all levels of credit quality including deeply distressed bonds and introduce additional risk measures that are…
Explicitly taking into account the risk incurred when borrowing at a shorter tenor versus lending at a longer tenor ("roll-over risk"), we construct a stochastic model framework for the term structure of interest rates in which a frequency…
The term structure of credit spreads is studied with an aim to predict its future movements. A completely new approach to tackle this problem is presented, which utilizes nonlinear parametric models. The Brain-Cousens regression model with…
We develop a novel multivariate semi-parametric framework for joint portfolio Value-at-Risk (VaR) and Expected Shortfall (ES) forecasting. Unlike existing univariate semi-parametric approaches, the proposed framework explicitly models the…
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…
In this work, I generalize Merton's approach of pricing risky debt to the case where the interest rate risk is modeled by the CIR term structure. Closed form result for pricing the debt is given for the case where the firm value has…
We present a class of flexible and tractable static factor models for the term structure of joint default probabilities, the factor copula models. These high-dimensional models remain parsimonious with pair-copula constructions, and nest…
We design a system for risk-analyzing and pricing portfolios of non-performing consumer credit loans. The rapid development of credit lending business for consumers heightens the need for trading portfolios formed by overdue loans as a…
This paper addresses estimates of climate risk embedded within a bank credit portfolio. The proposed Climate Extended Risk Model (CERM) adapts well known credit risk models and makes it possible to calculate incremental credit losses on a…
In this paper we use a hybrid Monte Carlo-Optimal quantization method to approximate the conditional survival probabilities of a firm, given a structural model for its credit defaul, under partial information. We consider the case when the…
We introduce a novel machine learning model for credit risk by combining tree-boosting with a latent spatio-temporal Gaussian process model accounting for frailty correlation. This allows for modeling non-linearities and interactions among…
We introduce a dynamic credit portfolio framework where optimal investment strategies are robust against misspecifications of the reference credit model. The risk-averse investor models his fear of credit risk misspecification by…
In this paper incomplete-information models are developed for the pricing of securities in a stochastic interest rate setting. In particular we consider credit-risky assets that may include random recovery upon default. The market…
We propose a unified structural credit risk model incorporating both insolvency and illiquidity risks, in order to investigate how a firm's default probability depends on the liquidity risk associated with its financing structure. We assume…
We present a family of models for the term structure of interest rates which describe the interest rate curve as a stochastic process in a Hilbert space. We start by decomposing the deformations of the term structure into the variations of…
In banking practice, rating transition matrices have become the standard approach of deriving multi-year probabilities of default (PDs) from one-year PDs, the latter normally being available from Basel ratings. Rating transition matrices…
This article proposes a method for measuring the latent risks involved in the recovery process of non performing loans in financial institutions and business firms that deal with collection and recovery processes. To that end, we apply the…
We present a general framework for the estimation of corporate default based on a firm's capital structure, when its assets are assumed to follow a pure jump L\'evy processes; this setup provides a natural extension to usual default metrics…