Related papers: Recovery Swaps
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 economic analysis, rational decision-makers often take actions to reduce their risk exposure. These actions include purchasing market insurance and implementing prevention measures to modify the shape of the loss distribution. Under the…
Financial networks raise a significant computational challenge in identifying insolvent firms and evaluating their exposure to systemic risk. This task, known as the clearing problem, is computationally tractable when dealing with simple…
Absence-of-Arbitrage (AoA) is the basic assumption underpinning derivatives pricing theory. As part of the OTC derivatives market, the CDS market not only provides a vehicle for participants to hedge and speculate on the default risks of…
This paper presents a new model for pricing financial derivatives subject to collateralization. It allows for collateral arrangements adhering to bankruptcy laws. As such, the model can back out the market price of a collateralized…
Recent advances in machine learning-aided lossy compression are incorporating perceptual fidelity into the rate-distortion theory. In this paper, we study the rate-distortion-perception trade-off when the perceptual quality is measured by…
This note formulates a deterministic recovery result for vectors $x$ from quadratic measurements of the form $(Ax)_i \overline{(Ax)_j}$ for some left-invertible $A$. Recovery is exact, or stable in the noisy case, when the couples $(i,j)$…
We study dynamic hedging of counterparty risk for a portfolio of credit derivatives. Our empirically driven credit model consists of interacting default intensities which ramp up and then decay after the occurrence of credit events. Using…
In this paper we want to exploit further the semi-discrete method appeared in Halidias and Stamatiou (2015). We are interested in the numerical solution of mean reverting CEV processes that appear in financial mathematics models and are…
Automatic differentiation is involved for long in applied mathematics as an alternative to finite difference to improve the accuracy of numerical computation of derivatives. Each time a numerical minimization is involved, automatic…
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…
In this article, we apply the forward variance modeling approach by L.Bergomi to the co-terminal swap market model. We build an interest rate model for which all the market price changes of hedging instruments, interest rate swaps and…
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…
We study the problem of corrupted sensing, a generalization of compressed sensing in which one aims to recover a signal from a collection of corrupted or unreliable measurements. While an arbitrary signal cannot be recovered in the face of…
There is empirical evidence that recovery rates tend to go down just when the number of defaults goes up in economic downturns. This has to be taken into account in estimation of the capital against credit risk required by Basel II to cover…
We propose a novel credit default model that takes into account the impact of macroeconomic information and contagion effect on the defaults of obligors. We use a set-valued Markov chain to model the default process, which is the set of all…
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…
Statistical arbitrage is a prevalent trading strategy which takes advantage of mean reverse property of spread of paired stocks. Studies on this strategy often rely heavily on model assumption. In this study, we introduce an innovative…
We address the problem of variable selection in a high-dimensional but sparse mean model, under the additional constraint that only privatised data are available for inference. The original data are vectors with independent entries having a…
We depart from the usual methods for pricing contracts with the counterparty credit risk found in most of the existing literature. In effect, typically, these models do not account for either systemic effects or at-first-default contagion…