Related papers: Default clustering in large portfolios: Typical ev…
The two main approaches in credit risk are the structural approach pioneered in Merton (1974) and the reduced-form framework proposed in Jarrow & Turnbull (1995) and in Artzner & Delbaen (1995). The goal of this article is to provide a…
Predicting potential credit default accounts in advance is challenging. Traditional statistical techniques typically cannot handle large amounts of data and the dynamic nature of fraud and humans. To tackle this problem, recent research has…
Motivated by the interplay between structural and reduced form credit models, we propose to model the firm value process as a time-changed Brownian motion that may include jumps and stochastic volatility effects, and to study the first…
We study an optimal investment problem under default risk where related information such as loss or recovery at default is considered as an exogenous random mark added at default time. Two types of agents who have different levels of…
Emergent design failures are ubiquitous in complex systems, and often arise when system elements cluster. Approaches to systematically reduce clustering could improve a design's resilience, but reducing clustering is difficult if it is…
In this paper we propose a copula contagion mixture model for correlated default times. The model includes the well known factor, copula, and contagion models as its special cases. The key advantage of such a model is that we can study the…
In this paper we analyze the resilience of a network of banks to joint price fluctuations of the external assets in which they have shared exposures, and evaluate the worst-case effects of the possible default contagion. Indeed, when the…
This paper studies the consequences of capturing non-linear dependence among the covariates that drive the default of different obligors and the overall riskiness of their credit portfolio. Joint default modeling is, without loss of…
How to forecast next year's portfolio-wide credit default rate based on last year's default observations and the current score distribution? A classical approach to this problem consists of fitting a mixture of the conditional score…
Systemic risk in banking systems remains a crucial issue that it has not been completely understood. In our toy model, banks are exposed to two sources of risks, namely, market risk from their investments in assets external to the banking…
The instability of historical risk factor correlations renders their use in estimating portfolio risk extremely questionable. In periods of market stress correlations of risk factors have a tendency to quickly go well beyond estimated…
We consider a large market model of defaultable assets in which the asset price processes are modelled as Heston-type stochastic volatility models with default upon hitting a lower boundary. We assume that both the asset prices and their…
Complex non-linear interactions between banks and assets we model by two time-dependent Erd\H{o}s Renyi network models where each node, representing bank, can invest either to a single asset (model I) or multiple assets (model II). We use…
Motivated by the detection of cascades of defaults in economy, we developed a detection framework for an endogenous spreading based on causal motifs we define in this paper. We assume that the change of state of a vertex can be triggered by…
In order to obtain functional limit theorems for heavy tailed stationary processes arising from dynamical systems, one needs to understand the clustering patterns of the tail observations of the process. These patterns are well described by…
The scope of financial systemic risk research encompasses a wide range of interbank channels and effects, including asset correlation shocks, default contagion, illiquidity contagion, and asset fire sales. This paper introduces a financial…
Stylized facts can be regarded as constraints for any modeling attempt of price dynamics on a financial market, in that an empirically reasonable model has to reproduce these stylized facts at least qualitatively. The dynamics of market…
We consider a market model where there are two levels of information. The public information generated by the financial assets, and a larger flow of information that contains additional knowledge about a random time. This random time can…
We develop a generalization of the Black-Cox structural model of default risk. The extended model captures uncertainty related to firm's ability to avoid default even if company's liabilities momentarily exceeding its assets. Diffusion in a…
This paper extends the classical dividend problem by incorporating a novel, path-dependent mechanism of firm default. In the traditional framework, ruin occurs when the surplus process first reaches zero. In contrast, default in our model…