Related papers: Default clustering in large portfolios: Typical ev…
We consider a portfolio optimization problem in a defaultable market with finitely-many economical regimes, where the investor can dynamically allocate her wealth among a defaultable bond, a stock, and a money market account. The market…
The stability of the financial system is associated with systemic risk factors such as the concurrent default of numerous small obligors. Hence it is of utmost importance to study the mutual dependence of losses for different creditors in…
This paper develops a continuous-time filtering framework for estimating a hazard rate subject to an unobservable change-point. This framework naturally arises in both financial and insurance applications, where the default intensity of a…
This paper develops a structural credit risk model to characterize the difference between the economic and recorded default times for a firm. Recorded default occurs when default is recorded in the legal system. The economic default time is…
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 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 paper we address the problem of optimal liquidation of a large portfolio composed by securities exposed to default risk. The default time is described in terms of a Brownian motion representing the evolution of the value of the…
It is a well known fact that recovery rates tend to go down when the number of defaults goes up in economic downturns. We demonstrate how the loss given default model with the default and recovery dependent via the latent systematic risk…
In this short paper, we study the simulation of a large system of stochastic processes subject to a common driving noise and fast mean-reverting stochastic volatilities. This model may be used to describe the firm values of a large pool of…
Corporate defaults may be triggered by some major market news or events such as financial crises or collapses of major banks or financial institutions. With a view to develop a more realistic model for credit risk analysis, we introduce a…
We propose an interacting particle system to model the evolution of a system of banks with mutual exposures. In this model, a bank defaults when its normalized asset value hits a lower threshold, and its default causes instantaneous losses…
This paper presents comparison results and establishes risk bounds for credit portfolios within classes of Bernoulli mixture models, assuming conditionally independent defaults that are stochastically increasing with a common risk factor.…
We introduce a model for the loss distribution of a credit portfolio considering a contagion mechanism for the default of names which is the result of two independent components: an infection attempt generated by defaulting entities and a…
We show that financial correlations exhibit a non-trivial dynamic behavior. We introduce a simple phenomenological model of a multi-asset financial market, which takes into account the impact of portfolio investment on price dynamics. This…
We propose a unified framework for equity and credit risk modeling, where the default time is a doubly stochastic random time with intensity driven by an underlying affine factor process. This approach allows for flexible interactions…
Credit risk in the China's bond market has become increasingly evident, creating a progressively escalating risk of default for credit bond investors. Given the current incomplete and inaccurate bond information disclosure, timely tracking…
We introduce a novel class of credit risk models in which the drift of the survival process of a firm is a linear function of the factors. The prices of defaultable bonds and credit default swaps (CDS) are linear-rational in the factors.…
We study the impact of contagion in a network of firms facing credit risk. We describe an intensity based model where the homogeneity assumption is broken by introducing a random environment that makes it possible to take into account the…
In the paper we study dynamics of the arbitrage prices of credit default swaps within a hazard process model of credit risk. We derive these dynamics without postulating that the immersion property is satisfied between some relevant…
In this paper, we study large losses arising from defaults of a credit portfolio. We assume that the portfolio dependence structure is modelled by the Archimedean copula family as opposed to the widely used Gaussian copula. The resulting…