Related papers: Bivariate Semi-Markov Process for Counterparty Cre…
Multi-type Markov point processes offer a flexible framework for modelling complex multi-type point patterns where it is pertinent to capture both interactions between points as well as large scale trends depending on observed covariates.…
We propose a dynamic model of dependence structure between financial institutions within a financial system and we construct measures for dependence and financial instability. Employing Markov structures of joint credit migrations, our…
We design a system for risk-analyzing and pricing portfolios of non-performing consumer credit loans. The rapid development of credit lending business for consumers heightens the need for trading portfolios formed by overdue loans as a…
In this paper, we propose a methodology based on piece-wise homogeneous Markov chain for credit ratings and a multivariate model of the credit spreads to evaluate the financial risk in European Union (EU). Two main aspects are considered:…
We explore credit risk pricing by modeling equity as a call option and debt as the difference between the firm's asset value and a put option, following the structural framework of the Merton model. Our approach proceeds in two stages:…
Much research in systemic risk is focused on default contagion. While this demands an understanding of valuation, fewer articles specifically deal with the existence, the uniqueness, and the computation of equilibrium prices in structural…
In this paper we consider a reduced-form intensity-based credit risk model with a hidden Markov state process. A filtering method is proposed for extracting the underlying state given the observation processes. The method may be applied to…
Modeling cyber risks has been an important but challenging task in the domain of cyber security. It is mainly because of the high dimensionality and heavy tails of risk patterns. Those obstacles have hindered the development of statistical…
In this paper, we model the rating process of an entity as a piecewise homogeneous continuous time Markov chain. We focus specifically on calibrating the model to both historical data (rating transition matrices) and market data (CDS…
This project attempts to address the problem of asset pricing in a financial market, where the interest rates and volatilities exhibit regime switching. This is an extension of the Black-Scholes model. Studies of Markov-modulated regime…
In this paper we propose a bivariate generalization of a weighted indexed semi-Markov chains to study the high frequency price dynamics of traded stocks. We assume that financial returns are described by a weighted indexed semi-Markov chain…
In this work we develop a tractable structural model with analytical default probabilities depending on a random default barrier and possibly random volatility ideally associated with a scenario based underlying firm debt. We show how to…
Semi-Markov processes are Markovian processes in which the firing time of the transitions is modelled by probabilistic distributions over positive reals interpreted as the probability of firing a transition at a certain moment in time. In…
Transition risk can be defined as the business-risk related to the enactment of green policies, aimed at driving the society towards a sustainable and low-carbon economy. In particular, the value of certain firms' assets can be lower…
We consider a control problem for a finite-state Markov system whose performance is evaluated by a coherent Markov risk measure. For each policy, the risk of a state is approximated by a function of its features, thus leading to a…
Over-the-counter derivatives have contributed significantly to the effectiveness and efficiency of the international financial system but also entail significant counterparty credit risk. Collateralization is one of the most important and…
Markov cohort state-transition models have been the standard approach for simulating the prognosis of patients or, more generally, the life trajectories of individuals over a time period. Current approaches for estimating the variance of a…
In a series of recent papers, Damiano Brigo, Andrea Pallavicini, and co-authors have shown that the value of a contract in a Credit Valuation Adjustment (CVA) setting, being the sum of the cash flows, can be represented as a solution of a…
In this paper we offer a novel type of network model which can capture the precise structure of a financial market based, for example, on empirical findings. With the attached stochastic framework it is further possible to study how an…
A positive correlation between exposure and counterparty credit risk gives rise to the so-called Wrong-Way Risk (WWR). Even after a decade of the financial crisis, addressing WWR in both sound and tractable ways remains challenging.…