Related papers: A Random Matrix Approach to Credit Risk
Credit ratings are widely used by investors as a screening device. We introduce and study several natural notions of risk consistency that promote prudent investment decisions in the framework of Choquet rating criteria. Three closely…
A method to generate new classes of random matrix ensembles is proposed. Random matrices from these ensembles are Lax matrices of classically integrable systems with a certain distribution of momenta and coordinates. The existence of an…
A probabilistic framework is introduced that represents stylized banking networks and aims to predict the size of contagion events. In contrast to previous work on random financial networks, which assumes independent connections between…
The impact of a stress scenario of default events on the loss distribution of a credit portfolio can be assessed by determining the loss distribution conditional on these events. While it is conceptually easy to estimate loss distributions…
Regulatory requirements dictate that financial institutions must calculate risk capital (funds that must be retained to cover future losses) at least annually. Procedures for doing this have been well-established for many years, but recent…
This paper examines the possibility of using derivative-implied risk premia to explain stock returns. The rapid development of derivative markets has led to the possibility of trading various kinds of risks, such as credit and interest rate…
Random contractions (sub-unitary random matrices) appear naturally when considering quantized chaotic maps within a general theory of open linear stationary systems with discrete time. We analyze statistical properties of complex…
This paper considers general term structure models like the ones appearing in portfolio credit risk modelling or life insurance. We give a general model starting from families of forward rates driven by infinitely many Brownian motions and…
A risk analyst assesses potential financial losses based on multiple sources of information. Often, the assessment does not only depend on the specification of the loss random variable but also various economic scenarios. Motivated by this…
To quantify the changes in the credit rating of a bond is an important mathematical problem for the credit rating industry. To think of the credit rating as the state a Markov chain is an interesting proposal leading to challenges in…
We introduce a class of dependence structures, that we call the Multiple Risk Factor (MRF) dependence structures. On the one hand, the new constructions extend the popular CreditRisk+ approach, and as such they formally describe default…
When the available statistical information is imperfect, it is dangerous to follow standard optimisation procedures to construct an optimal portfolio, which usually leads to a strong concentration of the weights on very few assets. We…
We analyze complex networks under random matrix theory framework. Particularly, we show that $\Delta_3$ statistic, which gives information about the long range correlations among eigenvalues, provides a qualitative measure of randomness in…
Consider an insurance company exposed to a stochastic economic environment that contains two kinds of risk. The first kind is the insurance risk caused by traditional insurance claims, and the second kind is the financial risk resulting…
Why do companies choose particular capital structures? A compelling answer to this question remains elusive despite extensive research. In this article, we use double machine learning to examine the heterogeneous causal effect of credit…
Effective credit risk management is fundamental to financial decision-making, requiring robust models to predict default probabilities and classify financial entities. Traditional machine learning approaches face significant challenges when…
This paper introduces a new methodology for constructing a network of companies called a dynamic asset graph. This is similar to the dynamic asset tree studied recently, as both are based on correlations between asset returns. However, the…
The Basel II internal ratings-based (IRB) approach to capital adequacy for credit risk plays an important role in protecting the Australian banking sector against insolvency. We outline the mathematical foundations of regulatory capital for…
Simulating sample correlation matrices is important in many areas of statistics. Approaches such as generating Gaussian data and finding their sample correlation matrix or generating random uniform $[-1,1]$ deviates as pairwise correlations…
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…