Related papers: Bankruptcy risk model and empirical tests
We propose a dynamic model of dependence structure between financial institutions within a financial system and we construct measures for dependence and financial instability. Employing Markov structures of joint credit migrations, our…
In this paper, we study the optimal capital structure model with endogenous bankruptcy when the firm's asset value follows an exponential L\'evy process with positive jumps. In the Leland-Toft framework \cite{LelandToft96}, we obtain the…
In recent years research on credit risk modelling has mainly focused on default probabilities. Recovery rates are usually modelled independently, quite often they are even assumed constant. Then, however, the structural connection between…
The relationship between the size and the variance of firm growth rates is known to follow an approximate power-law behavior $\sigma(S) \sim S^{-\beta(S)}$ where $S$ is the firm size and $\beta(S)\approx 0.2$ is an exponent weakly dependent…
This paper characterizes the probability of a market failure defined as the default of two or more globally systemically important banks (G-SIBs) in a small interval of time. The default probabilities of the G-SIBs are correlated through…
A model is presented of the market dynamics to emphasis the effects of increasing returns to scale, including the description of the born and death of the adaptive producers. The evolution of market structure and its behavior with the…
Recent financial disasters emphasised the need to investigate the consequence associated with the tail co-movements among institutions; episodes of contagion are frequently observed and increase the probability of large losses affecting…
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…
We compare two models of corporate default by calculating the Jeffreys-Kullback-Leibler divergence between their predicted default probabilities when asset correlations are either high or low. Our main results show that the divergence…
We present the qGaussian generalization of the Merton framework, which takes into account slow fluctuations of the volatility of the firms market value of financial assets. The minimal version of the model depends on the Tsallis entropic…
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…
A set of data with positive values follows a Pareto distribution if the log-log plot of value versus rank is approximately a straight line. A Pareto distribution satisfies Zipf's law if the log-log plot has a slope of -1. Since many types…
The rank-size plots of a large number of different physical and socio-economic systems are usually said to follow Zipf's law, but a unique framework for the comprehension of this ubiquitous scaling law is still lacking. Here we show that a…
We introduce a binary regression accounting-based model for bankruptcy prediction of small and medium enterprises (SMEs). The main advantage of the model lies in its predictive performance in identifying defaulted SMEs. Another advantage,…
In this work we deal with correlated failure time (age at onset) data arising from population-based case-control studies, where case and control probands are selected by population-based sampling and an array of risk factor measures is…
Using the framework of factor models, we establish the general expression of the coefficient of tail dependence between the market and a stock (i.e., the probability that the stock incurs a large loss, assuming that the market has also…
A so called Zipf analysis portofolio management technique is introduced in order to comprehend the risk and returns. Two portofoios are built each from a well known financial index. The portofolio management is based on two approaches: one…
In normal times, it is assumed that financial institutions operating in non-overlapping sectors have complementary and distinct outcomes, typically reflected in mostly uncorrelated outcomes and asset returns. Such is the reasoning behind…
A large consensus now seems to take for granted that the distributions of empirical returns of financial time series are regularly varying, with a tail exponent close to 3. We revisit this results and use standard tests as well as develop a…
In the area of credit risk analytics, current Bankruptcy Prediction Models (BPMs) struggle with (a) the availability of comprehensive and real-world data sets and (b) the presence of extreme class imbalance in the data (i.e., very few…