Related papers: Two-factor capital structure models for equity and…
In this paper, we study a continuous time structural asset value model for two correlated firms using a two-dimensional Brownian motion. We consider the situation of incomplete information, where the information set available to the market…
This paper re-examines the problem of estimating risk premia in linear factor pricing models. Typically, the data used in the empirical literature are characterized by weakness of some pricing factors, strong cross-sectional dependence in…
We propose a model which can be jointly calibrated to the corporate bond term structure and equity option volatility surface of the same company. Our purpose is to obtain explicit bond and equity option pricing formulas that can be…
We consider structural credit modeling in the important special case where the log-leverage ratio of the firm is a time-changed Brownian motion (TCBM) with the time-change taken to be an independent increasing process. Following the…
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 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…
Even in the simple one-factor credit portfolio model that underlies the Basel II regulatory capital rules coming into force in 2007, the exact contributions to credit value-at-risk can only be calculated with Monte-Carlo simulation or with…
In this paper we analyse the five-factor capital market model of Munk et al.(2004). The model features a Vasicek interest rate model, an equity index with mean-reverting excess return and an index for realized inflation with mean-reverting…
In this paper we provide a comprehensive analysis of a structural model for the dynamics of prices of assets traded in a market originally proposed in [1]. The model takes the form of an interacting generalization of the geometric Brownian…
The recent financial crisis has led to so-called multi-curve models for the term structure. Here we study a multi-curve extension of short rate models where, in addition to the short rate itself, we introduce short rate spreads. In…
We present a general Markovian framework for order book modeling. Through our approach, we aim at providing a tool enabling to get a better understanding of the price formation process and of the link between microscopic and macroscopic…
We consider evaluation methods for payoffs with an inherent financial risk as encountered for instance for portfolios held by pension funds and insurance companies. Pricing such payoffs in a way consistent to market prices typically…
We set up a structural model to study credit risk for a portfolio containing several or many credit contracts. The model is based on a jump--diffusion process for the risk factors, i.e. for the company assets. We also include correlations…
We consider the forward investment problem in market models where the stock prices are continuous semimartingales adapted to a Brownian filtration. We construct a broad class of forward performance processes with initial conditions of power…
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…
This paper proposes a portfolio construction framework designed to remain robust under estimation error, non-stationarity, and realistic trading constraints. The methodology combines dynamic asset eligibility, deterministic rebalancing, and…
A new framework for asset pricing based on modelling the information available to market participants is presented. Each asset is characterised by the cash flows it generates. Each cash flow is expressed as a function of one or more…
This work focuses on financial risks from a probabilistic point of view. The value of a firm is described as a geometric Brownian motion and default emerges as a first passage time event. On the technical side, the critical threshold that…
Fractional Brownian motion has become a standard tool to address long-range dependence in financial time series. However, a constant memory parameter is too restrictive to address different market conditions. Here we model the price…
This paper presents an augmented deep factor model that generates latent factors for cross-sectional asset pricing. The conventional security sorting on firm characteristics for constructing long-short factor portfolio weights is nonlinear…