Related papers: Default Risk Modeling Beyond the First-Passage App…
Changes in collateralization have been implicated in significant default (or near-default) events during the financial crisis, most notably with AIG. We have developed a framework for quantifying this effect based on moving between…
Diffusion in a linear potential in the presence of position-dependent killing is used to mimic a default process. Different assumptions regarding transport coefficients, initial conditions, and elasticity of the killing measure lead to…
This work focuses on financial risks from a probabilistic point of view. The value of a firm is described as a geometric Brownian motion and default emerges as a first passage time event. On the technical side, the critical threshold that…
According to theoretical models of valuing risky corporate securities, risk of default is primary component in overall yield spread. However, sizable empirical literature considers it otherwise by giving more importance to non-default risk…
We compare observed corporate cumulative default probabilities to those calculated using a stochastic model based on an extension of the work of Black and Cox and find that corporations default as if via diffusive dynamics. The model, based…
We investigate the impact of available information on the estimation of the default probability within a generalized structural model for credit risk. The traditional structural model where default is triggered when the value of the firm's…
Risk-averse investors often wish to exclude stocks from their portfolios that bear high credit risk, which is a measure of a firm's likelihood of bankruptcy. This risk is commonly estimated by constructing signals from quarterly accounting…
We consider structural credit modeling in the important special case where the log-leverage ratio of the firm is a time-changed Brownian motion (TCBM) with the time-change taken to be an independent increasing process. Following the…
This paper develops a two-dimensional structural framework for valuing credit default swaps and corporate bonds in the presence of default contagion. Modelling the values of related firms as correlated geometric Brownian motions with…
In this paper, we deal with an axiomatic approach to default risk. We introduce the notion of a default risk measure, which generalizes the classical probability of default (PD), and allows to incorporate model risk in various forms. We…
The classical reduced-form and filtration expansion framework in credit risk is extended to the case of multiple, non-ordered defaults, assuming that conditional densities of the default times exist. Intensities and pricing formulas are…
Default risk calculus plays a crucial role in portfolio optimization when the risky asset is under threat of bankruptcy. However, traditional stochastic control techniques are not applicable in this scenario, and additional assumptions are…
In the pursuit of modelling a loan's probability of default (PD) over its lifetime, repeat default events are often ignored when using Cox Proportional Hazard (PH) models. Excluding such events may produce biased and inaccurate…
The issue of model risk in default modeling has been known since inception of the Academic literature in the field. However, a rigorous treatment requires a description of all the possible models, and a measure of the distance between a…
The present paper provides a multi-period contagion model in the credit risk field. Our model is an extension of Davis and Lo's infectious default model. We consider an economy of n firms which may default directly or may be infected by…
We consider an approach to credit risk in which the information about the time of bankruptcy is modelled using a Brownian bridge that starts at zero and is conditioned to equal zero when the default occurs. This raises the question whether…
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,…
The modeling of the probability of joint default or total number of defaults among the firms is one of the crucial problems to mitigate the credit risk since the default correlations significantly affect the portfolio loss distribution and…
The lifetime behaviour of loans is notoriously difficult to model, which can compromise a bank's financial reserves against future losses, if modelled poorly. Therefore, we present a data-driven comparative study amongst three techniques in…
Networked-guarantee loans may cause the systemic risk related concern of the government and banks in China. The prediction of default of enterprise loans is a typical extremely imbalanced prediction problem, and the networked-guarantee make…