Related papers: Credit contagion and risk management with multiple…
In this work we introduce a model of default contagion that combines the approaches of Eisenberg-Noe interbank networks and dynamic mean field interactions. The proposed contagion mechanism provides an endogenous rule for early defaults in…
We study a family of binary state, socially-inspired contagion models which incorporate imitation limited by an aversion to complete conformity. We uncover rich behavior in our models whether operating with either probabilistic or…
We study an optimal investment problem under contagion risk in a financial model subject to multiple jumps and defaults. The global market information is formulated as a progressive enlargement of a default-free Brownian filtration, and the…
This paper considers a variant of the classical Cram\'er-Lundberg model that is particularly appropriate in the credit context, with the distinguishing feature that it corresponds to a finite number of obligors. The focus is on computing…
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…
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…
Default risk calculus plays a crucial role in portfolio optimization when the risky asset is under threat of bankruptcy. However, traditional stochastic control techniques are not applicable in this scenario, and additional assumptions are…
Groups of enterprises can serve as guarantees for one another and form complex networks when obtaining loans from commercial banks. During economic slowdowns, corporate default may spread like a virus and lead to large-scale defaults or…
Common asset holdings are widely believed to have been the primary vector of contagion in the recent financial crisis. We develop a network approach to the amplification of financial contagion due to the combination of overlapping…
In this paper we propose a simple and efficient method to compute the ordered default time distributions in both the homogeneous case and the two-group heterogeneous case under the interacting intensity default contagion model. We give the…
Using particle system methodologies we study the propagation of financial distress in a network of firms facing credit risk. We investigate the phenomenon of a credit crisis and quantify the losses that a bank may suffer in a large credit…
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…
A key ingredient in social contagion dynamics is reinforcement, as adopting a certain social behavior requires verification of its credibility and legitimacy. Memory of non-redundant information plays an important role in reinforcement,…
We analyze the fluctuation of the loss from default around its large portfolio limit in a class of reduced-form models of correlated firm-by-firm default timing. We prove a weak convergence result for the fluctuation process and use it for…
Credit capital requirements in Internal Rating Based approaches require the calibration of two key parameters: the probability of default and the loss-given-default. This letter considers the uncertainty about these two parameters and…
We study financial networks where banks are connected through bilateral liabilities and may default when resources are insufficient to meet obligations. We consider both the standard proportional clearing model and a priority-proportional…
Evaluation of default correlation is an important task in credit risk analysis. In many practical situations, it concerns the joint defaults of several correlated firms, the task that is reducible to a first passage time (FPT) problem. This…
In this paper, we deal with an axiomatic approach to default risk. We introduce the notion of a default risk measure, which generalizes the classical probability of default (PD), and allows to incorporate model risk in various forms. We…
This paper presents a meta-learning framework for credit risk assessment of Italian Small and Medium Enterprises (SMEs) that explicitly addresses the temporal misalignment of credit scoring models. The approach aligns financial statement…
We consider a large collection of dynamically interacting components defined on a weighted directed graph determining the impact of default of one component to another one. We prove a law of large numbers for the empirical measure capturing…