Related papers: A tractable LIBOR model with default risk
We discuss the pricing of defaultable assets in an incomplete information model where the default time is given by a first hitting time of an unobservable process. We show that in a fairly general Markov setting, the indicator function of…
A simple graphical model for correlated defaults is proposed, with explicit formulas for the loss distribution. Algebraic geometry techniques are employed to show that this model is well posed for default dependence: it represents any given…
The importance of adequately modeling credit risk has once again been highlighted in the recent financial crisis. Defaults tend to cluster around times of economic stress due to poor macro-economic conditions, {\em but also} by directly…
We formulate a forward inflation index model with multi-factor volatility structure featuring a parametric form that allows calibration to correlations between indices of different tenors observed in the market. Assuming the nominal…
In credit risk literature, the existence of an equivalent martingale measure is stipulated as one of the main assumptions in the hazard process model. Here we show by construction the existence of a measure that turns the discounted stock…
We provide analytical pricing formula of corporate defaultable bond with both expected and unexpected default in the case with stochastic default intensity. In the case with constant short rate and exogenous default recovery using PDE…
We propose a formulation of the term structure of interest rates in which the forward curve is seen as the deformation of a string. We derive the general condition that the partial differential equations governing the motion of such string…
In this paper incomplete-information models are developed for the pricing of securities in a stochastic interest rate setting. In particular we consider credit-risky assets that may include random recovery upon default. The market…
We consider a class of assets whose risk-neutral pricing dynamics are described by an exponential L\'evy-type process subject to default. The class of processes we consider features locally-dependent drift, diffusion and default-intensity…
The paper tests the validity of the critique of the fiscal theory of the price level. A stochastic general equilibrium model with continuous time is constructed. An active fiscal policy and a passive monetary policy have been set. Monetary…
In this paper, we propose a new exogenous model to address the problem of negative interest rates that preserves the analytical tractability of the original Cox-Ingersoll-Ross (CIR) model with a perfect fit to the observed term-structure.…
We propose a non-parametric extension with leverage functions to the Andersen commodity curve model. We calibrate this model to market data for WTI and NG including option skew at the standard maturities. While the model can be calibrated…
A direct method for calculating default rates by industry and target corporate segments is not possible given the lack of statistical data. The proposed paper considers a model for filtering the dynamics of the probability of default of…
Automatic credit scoring, which assesses the probability of default by loan applicants, plays a vital role in peer-to-peer lending platforms to reduce the risk of lenders. Although it has been demonstrated that dynamic selection techniques…
Calibrating blackbox machine learning models to achieve risk control is crucial to ensure reliable decision-making. A rich line of literature has been studying how to calibrate a model so that its predictions satisfy explicit finite-sample…
We derive a closed-form approximation for the credit default swap (CDS) spread in the two-dimensional shifted square-root diffusion (SSRD) model using asymptotic coefficient expansion technique to approximate solutions of nonlinear partial…
We propose a unified structural credit risk model incorporating both insolvency and illiquidity risks, in order to investigate how a firm's default probability depends on the liquidity risk associated with its financing structure. We assume…
The instability of the financial system as experienced in recent years and in previous periods is often linked to credit defaults, i.e., to the failure of obligors to make promised payments. Given the large number of credit contracts, this…
We introduce a model for the loss distribution of a credit portfolio considering a contagion mechanism for the default of names which is the result of two independent components: an infection attempt generated by defaulting entities and a…
Operational risk is the risk relative to monetary losses caused by failures of bank internal processes due to heterogeneous causes. A dynamical model including both spontaneous generation of losses and generation via interactions between…