Related papers: A Random Matrix Approach to Credit Risk
This work explores the characteristics of financial contagion in networks whose links distributions approaches a power law, using a model that defines banks balance sheets from information of network connectivity. By varying the parameters…
Excessive leverage, i.e. the abuse of debt financing, is considered one of the primary factors in the default of financial institutions. Systemic risk results from correlations between individual default probabilities that cannot be…
We consider a structural credit model for a large portfolio of credit risky assets where the correlation is due to a market factor. By considering the large portfolio limit of this system we show the existence of a density process for the…
For a risk vector $V$, whose components are shared among agents by some random mechanism, we obtain asymptotic lower and upper bounds for the individual agents' exposure risk and the aggregated risk in the market. Risk is measured by…
We find a novel correlation structure in the residual noise of stock market returns that is remarkably linked to the composition and stability of the top few significant factors driving the returns, and moreover indicates that the noise…
Correlations may affect propagation processes on complex networks. To analyze their effect, it is useful to build ensembles of networks constrained to have a given value of a structural measure, such as the degree-degree correlation $r$,…
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…
In finance, Random Matrix Theory (RMT) is an important tool for filtering out noise from large datasets, revealing true correlations among stocks, enhancing risk management and portfolio optimization. In this study, we use RMT to filter out…
Applying software defect esimation techniques and presenting this information in a compact and impactful decision table can clearly illustrate to collaborative groups how critical this position is in the overall development cycle. The Test…
Credit risk scorecards are logistic regression models, fitted to large and complex data sets, employed by the financial industry to model the probability of default of a potential customer. In order to ensure that a scorecard remains a…
This contribution to the proceedings of the Cracow meeting on `Applications of Random Matrix Theory' summarizes a series of studies, some old and others more recent on financial applications of Random Matrix Theory (RMT). We first review…
High precision analytical approximation is proposed for variance-covariance based risk allocation in a portfolio of risky assets. A general case of a single-period multi-factor Merton-type model with stochastic recovery is considered. The…
We explore credit risk pricing by modeling equity as a call option and debt as the difference between the firm's asset value and a put option, following the structural framework of the Merton model. Our approach proceeds in two stages:…
This paper considers the problem of measuring the credit risk in portfolios of loans, bonds, and other instruments subject to possible default under multi-factor models. Due to the amount of the portfolio, the heterogeneous effect of…
We analyze cross-correlations between price fluctuations of different stocks using methods of random matrix theory (RMT). Using two large databases, we calculate cross-correlation matrices C of returns constructed from (i) 30-min returns of…
We propose two structural models for stochastic losses given default which allow to model the credit losses of a portfolio of defaultable financial instruments. The credit losses are integrated into a structural model of default events…
The operating status of power systems is influenced by growing varieties of factors, resulting from the developing sizes and complexity of power systems; in this situation, the modelbased methods need be revisited. A data-driven method, as…
There exists a range of different models for estimating and simulating credit risk transitions to optimally manage credit risk portfolios and products. In this chapter we present a Coupled Markov Chain approach to model rating transitions…
We consider a model of contagion in financial networks recently introduced in the literature, and we characterize the effect of a few features empirically observed in real networks on the stability of the system. Notably, we consider the…
In this brief review, we critically examine the recent work done on correlation-based networks in financial systems. The structure of empirical correlation matrices constructed from the financial market data changes as the individual stock…