Related papers: Bivariate Semi-Markov Process for Counterparty Cre…
We introduce the general arbitrage-free valuation framework for counterparty risk adjustments in presence of bilateral default risk, including default of the investor. We illustrate the symmetry in the valuation and show that the adjustment…
We consider a structural default model in an interconnected banking network as in Lipton [International Journal of Theoretical and Applied Finance, 19(6), 2016], with mutual obligations between each pair of banks. We analyse the model…
The paper reviews origins of the approach to pricing derivatives post-crisis by following three papers that have received wide acceptance from practitioners as the theoretical foundations for it - [Piterbarg 2010], [Burgard and Kjaer 2010]…
The purpose of this paper is to design an algorithm for the computation of the counterparty risk which is competitive in regards of a brute force "Monte-Carlo of Monte-Carlo" method (with nested simulations). This is achieved using marked…
We propose a novel credit default model that takes into account the impact of macroeconomic information and contagion effect on the defaults of obligors. We use a set-valued Markov chain to model the default process, which is the set of all…
This paper introduces a credit risk rating model for credit risk assessment in quantitative finance, aiming to categorize borrowers based on their behavioral data. The model is trained on data from Experian, a widely recognized credit…
In this paper, we propose a two-sector Markovian infectious model, which is an extension of Greenwood's model. The central idea of this model is that the causality of defaults of two sectors is in both direction, which enrich dependence…
Semi-Markov models are widely used for survival analysis and reliability analysis. In general, there are two competing parameterizations and each entails its own interpretation and inference properties. On the one hand, a semi-Markov…
Credit Valuation Adjustment captures the difference in the value of derivative contracts when the counterparty default probability is taken into account. However, in the context of a network of contracts, the default probability of a direct…
This paper presents a convenient framework for modeling default process and pricing derivative securities involving credit risk. The framework provides an integrated view of credit valuation adjustment by linking distance-to-default,…
The purpose of this paper is to describe and extend the use of the newly-introduced measure, residual estimation risk. Following the seminal work of Bignozzi and Tsanakas, the quantification of residual estimation risk is proposed in a…
This paper studies average-cost Markov decision processes with semi-uniform Feller transition probabilities. This class of MDPs was recently introduced by the authors to study MDPs with incomplete information. This paper studies the…
In this paper, we performs a credit risk analysis, on the data of past loan applicants of a company named Lending Club. The calculation required the use of exploratory data analysis and machine learning classification algorithms, namely,…
During recent years the counterparty risk subject has received a growing attention because of the so called Basel Accord. In particular the Basel III Accord asks the banks to fulfill finer conditions concerning counterparty credit exposures…
In recent years, the counterparty credit risk measure, namely the default risk in \emph{Over The Counter} (OTC) derivatives contracts, has received great attention by banking regulators, specifically within the frameworks of \emph{Basel II}…
A new approach is developed for evaluating the convergence rate for nonlinear Markov chains (MC) based on the recently developed spectral radius technique of markovian coupling for linear MC and the idea of small nonlinear perturbations of…
Banks and financial institutions all over the world manage portfolios containing tens of thousands of customers. Not all customers are high credit-worthy, and many possess varying degrees of risk to the Bank or financial institutions that…
Wrong-way risk in counterparty and funding exposures is most dramatic in the situations of systemic crises and tails events. A consistent model of wrong-way risk (WWR) is developed here with the probability-weighted addition of tail events…
This paper addresses a key limitation in existing counterfactual inference methods for Markov Decision Processes (MDPs). Current approaches assume a specific causal model to make counterfactuals identifiable. However, there are usually many…
In an observed generalized semi-Markov regime, estimation of transition rate of regime switching leads towards calculation of locally risk minimizing option price. Despite the uniform convergence of estimated step function of transition…