Related papers: Empirical Evidence for the Structural Recovery Mod…
In this paper we modify the model of Itkin, Shcherbakov and Veygman, (2019) (ISV2019), proposed for pricing Quanto Credit Default Swaps (CDS) and risky bonds, in several ways. First, it is known since the Lehman Brothers bankruptcy that the…
The existence of asymmetric information has always been a major concern for financial institutions. Financial intermediaries such as commercial banks need to study the quality of potential borrowers in order to make their decision on…
Asset prices contain information about the probability distribution of future states and the stochastic discounting of those states as used by investors. To better understand the challenge in distinguishing investors' beliefs from…
In this article we consider the parameter risk in the context of internal modelling of the reserve risk under Solvency II. We discuss two opposed perspectives on parameter uncertainty and point out that standard methods of classical…
A Value-at-Risk based model is proposed to compute the adequate equity capital necessary to cover potential losses due to operational risks, such as human and system process failures, in banking organizations. Exploring the analogy to a…
The recent "correlation breakdown" in the modeling of credit default swaps, in which model correlations had to exceed 100% in order to reproduce market prices of supersenior tranches, is analyzed and argued to be a fundamental market…
We address challenges in variable selection with highly correlated data that are frequently present in finance, economics, but also in complex natural systems as e.g. weather. We develop a robustified version of the knockoff framework,…
A system is considered, which is subject to external and possibly fatal shocks, with dependence between the fatality of a shock and the system age. Apart from these shocks, the system suffers from competing soft and sudden failures, where…
The discrete time risk model with two seasons and dependent claims is considered. An algorithm is created for computing the values of the ultimate ruin probability. Theoretical results are illustrated with numerical examples.
In this paper, a new reliability model has been developed for a single system degrading stochastically which experiences soft and hard failure. Soft failure occurs when the physical deterioration level of the system is greater than a…
A multi-dimensional extension of the structural default model with firms' values driven by diffusion processes with Marshall-Olkin-inspired correlation structure is presented. Semi-analytical methods for solving the forward calibration…
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 introduce a novel machine learning model for credit risk by combining tree-boosting with a latent spatio-temporal Gaussian process model accounting for frailty correlation. This allows for modeling non-linearities and interactions among…
Dependent survival data arise in many contexts. One context is clustered survival data, where survival data are collected on clusters such as families or medical centers. Dependent survival data also arise when multiple survival times are…
We compare two models of corporate default by calculating the Jeffreys-Kullback-Leibler divergence between their predicted default probabilities when asset correlations are either high or low. Our main results show that the divergence…
In this paper we consider the classical and Erlang(2) risk processes when the inter-claim times and claim amounts are dependent. We assume that the dependence structure is defined through a Farlie-Gumbel-Morgenstern (FGM) copula and show…
We apply multiple testing procedures to the validation of estimated default probabilities in credit rating systems. The goal is to identify rating classes for which the probability of default is estimated inaccurately, while still…
This paper considers general term structure models like the ones appearing in portfolio credit risk modelling or life insurance. We give a general model starting from families of forward rates driven by infinitely many Brownian motions and…
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…
Recently, there has been a growing interest in network research, especially in these fields of biology, computer science, and sociology. It is natural to address complex financial issues such as the European sovereign debt crisis from the…