Related papers: Default clustering in large portfolios: Typical ev…

We present a general stochastic dynamic model of a cluster of biological complexes with fluctuating dissociation and association rates. The master equation has analytical solutions in two limiting cases: the vanishing force with reflecting…

In classical contagion models, default systems are Markovian conditionally on the observation of their stochastic environment, with interacting intensities. This necessitates that the environment evolves autonomously and is not influenced…

We consider empirical multi-dimensional Rare Events Point Processes that keep track both of the time occurrence of extremal observations and of their severity, for stochastic processes arising from a dynamical system, by evaluating a given…

A possible data source for the estimation of asset correlations is default time series. This study investigates the systematic error that is made if the exposure pool underlying a default time series is assumed to be homogeneous when in…

Mortgage default prediction is a core task in financial risk management, and machine learning models are increasingly used to estimate default probabilities and provide interpretable signals for downstream decisions. In real-world mortgage…

We formulate and investigate a general stochastic control problem under a progressive enlargement of filtration. The global information is enlarged from a reference filtration and the knowledge of multiple random times together with…

We consider the problem of the statistical uncertainty of the correlation matrix in the optimization of a financial portfolio. We show that the use of clustering algorithms can improve the reliability of the portfolio in terms of the ratio…

This note outlines a method for clustering time series based on a statistical model in which volatility shifts at unobserved change-points. The model accommodates some classical stylized features of returns and its relation to GARCH is…

Assume that a stochastic processes can be approximated, when some scale parameter gets large, by a fluid limit (also called "mean field limit", or "hydrodynamic limit"). A common practice, often called the "fixed point approximation"…

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…

Financial price changes obey two universal properties: they follow a power law and they tend to be clustered in time. The second regularity, known as volatility clustering, entails some predictability in the price changes: while their sign…

eCommerce transaction frauds keep changing rapidly. This is the major issue that prevents eCommerce merchants having a robust machine learning model for fraudulent transactions detection. The root cause of this problem is that rapid…

Given a set of assets and an investment capital, the classical portfolio selection problem consists in determining the amount of capital to be invested in each asset in order to build the most profitable portfolio. The portfolio…

Interbank contagion can theoretically exacerbate losses in a financial system and lead to additional cascade defaults during downturn. In this paper we produce default analysis using both regression and neural network models to verify…

Individual risk models need to capture possible correlations as failing to do so typically results in an underestimation of extreme quantiles of the aggregate loss. Such dependence modelling is particularly important for managing credit…

We present a dynamical theory of complex cooperative projects such as large engineering design or software development efforts, comprised of concurrent and interrelated tasks. The model accounts for temporal fluctuations both in task…

This article proposes a method for measuring the latent risks involved in the recovery process of non performing loans in financial institutions and business firms that deal with collection and recovery processes. To that end, we apply the…

The zero range process is of particular importance as a generic model for domain wall dynamics of one-dimensional systems far from equilibrium. We study this process in one dimension with rates which induce an effective attraction between…

We analyze cascades of defaults in an interbank loan market. The novel feature of this study is that the network structure and the size distribution of banks are derived from empirical data. We find that the ability of a defaulted…

In this paper we propose a new nonparametric approach to interacting failing systems (FS), that is systems whose probability of failure is not negligible in a fixed time horizon, a typical example being firms and financial bonds. The main…