Related papers: A tractable LIBOR model with default risk
The forecasting of the credit default risk has been an important research field for several decades. Traditionally, logistic regression has been widely recognized as a solution due to its accuracy and interpretability. As a recent trend,…
A free boundary diffusive logistic model finds application in many different fields from biological invasion to wildfire propagation. However, many of these processes show a random nature and contain uncertainties in the parameters. In this…
We construct default-free interest rate models in the spirit of the well-known Markov funcional models: our focus is analytic tractability of the models and generality of the approach. We work in the setting of state price densities and…
Due to the recent increase in interest in Financial Technology (FinTech), applications like credit default prediction (CDP) are gaining significant industrial and academic attention. In this regard, CDP plays a crucial role in assessing the…
We obtain an explicit formula for the bilateral counterparty valuation adjustment of a credit default swaps portfolio referencing an asymptotically large number of entities. We perform the analysis under a doubly stochastic intensity…
In this note, we develop stock option price approximations for a model which takes both the risk o default and the stochastic volatility into account. We also let the intensity of defaults be influenced by the volatility. We show that it…
This paper presents a new model for pricing financial derivatives subject to collateralization. It allows for collateral arrangements adhering to bankruptcy laws. As such, the model can back out the market price of a collateralized…
We derive a backward and forward nonlinear PDEs that govern the implied volatility of a contingent claim whenever the latter is well-defined. This would include at least any contingent claim written on a positive stock price whose payoff at…
This paper studies a valuation framework for financial contracts subject to reference and counterparty default risks with collateralization requirement. We propose a fixed point approach to analyze the mark-to-market contract value with…
The structural default model of Lipton and Sepp, 2009 is generalized for a set of banks with mutual interbank liabilities whose assets are driven by correlated Levy processes with idiosyncratic and common components. The multi-dimensional…
Explicitly taking into account the risk incurred when borrowing at a shorter tenor versus lending at a longer tenor ("roll-over risk"), we construct a stochastic model framework for the term structure of interest rates in which a frequency…
I develop a tractable adverse-selection model comparing secured bank loans and bonds when both pledge collateral but differ in effective liquidation efficiency. A small wedge in recovery rates generates coexistence, a sharp bank-bond…
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 introduce an arbitrage-free framework for robust valuation adjustments. An investor trades a credit default swap portfolio with a risky counterparty, and hedges credit risk by taking a position in defaultable bonds. The investor does not…
Evolving borrower behaviors, shifting economic conditions, and changing regulatory landscapes continuously reshape the data distributions underlying modern credit-scoring systems. Conventional explainability techniques, such as SHAP, assume…
This paper is concerned with finite dimensional models for the entire term structure for energy futures. As soon as a finite dimensional set of possible yield curves is chosen, one likes to estimate the dynamic behaviour of the yield curve…
The risk of a credit portfolio depends crucially on correlations between the probability of default (PD) in different economic sectors. Often, PD correlations have to be estimated from relatively short time series of default rates, and the…
Credit risk in the China's bond market has become increasingly evident, creating a progressively escalating risk of default for credit bond investors. Given the current incomplete and inaccurate bond information disclosure, timely tracking…
In this work, a pricing model for a defaultable corporate bond with credit rating migration risk is established. The model turns out to be a free boundary problem with two free boundaries. The latter are the level sets of the solution but…
This paper develops a continuous-time filtering framework for estimating a hazard rate subject to an unobservable change-point. This framework naturally arises in both financial and insurance applications, where the default intensity of a…