Related papers: Empirical Evidence for the Structural Recovery Mod…
A market with defaultable bonds where the bond dynamics is in a Heath-Jarrow-Morton setting and the forward rates are driven by an infinite number of Levy factors is considered. The setting includes rating migrations driven by a Markov…
In this short paper, we study the simulation of a large system of stochastic processes subject to a common driving noise and fast mean-reverting stochastic volatilities. This model may be used to describe the firm values of a large pool of…
We present a general framework for the estimation of corporate default based on a firm's capital structure, when its assets are assumed to follow a pure jump L\'evy processes; this setup provides a natural extension to usual default metrics…
Credit scoring is an essential tool used by global financial institutions and credit lenders for financial decision making. In this paper, we introduce a new method based on Gaussian Mixture Model (GMM) to forecast the probability of…
We propose a semi-structured discrete-time multi-state model to analyse mortgage delinquency transitions. This model combines an easy-to-understand structured additive predictor, which includes linear effects and smooth functions of time…
Conditional-independence-based discovery uses statistical tests to identify a graphical model that represents the independence structure of variables in a dataset. These tests, however, can be unreliable, and algorithms are sensitive to…
We introduce a class of dependence structures, that we call the Multiple Risk Factor (MRF) dependence structures. On the one hand, the new constructions extend the popular CreditRisk+ approach, and as such they formally describe default…
In this paper we propose a new nonparametric approach to interacting failing systems (FS), that is systems whose probability of failure is not negligible in a fixed time horizon, a typical example being firms and financial bonds. The main…
The estimation of marginal loan write-off probabilities is a non-trivial task when modelling the loss given default (LGD) risk parameter in credit risk. We explore two types of survival models in estimating the overall write-off probability…
Failure times of a machinery cannot always be assumed independent and identically distributed, e.g. if after reparations the machinery is not restored to a same-as-new condition. Framed within the renewal processes approach, a…
With the widespread application of machine learning in financial risk management, conventional wisdom suggests that longer training periods and more feature variables contribute to improved model performance. This paper, focusing on…
We theorize the financial health of a company and the risk of its default. A company is financially healthy as long as its equilibrium in the financial system is maintained, which depends on the cost attributable to the probability that…
The classical reduced-form and filtration expansion framework in credit risk is extended to the case of multiple, non-ordered defaults, assuming that conditional densities of the default times exist. Intensities and pricing formulas are…
The modeling of the probability of joint default or total number of defaults among the firms is one of the crucial problems to mitigate the credit risk since the default correlations significantly affect the portfolio loss distribution and…
We consider an approach to credit risk in which the information about the time of bankruptcy is modelled using a Brownian bridge that starts at zero and is conditioned to equal zero when the default occurs. This raises the question whether…
The paper shows how to determine the loss on an LGD borrower's loan after default, with or without preparation of a separate model. LGD after default is estimated taking into account the average repayment period of the defaulted loan,…
We consider a market model where there are two levels of information. The public information generated by the financial assets, and a larger flow of information that contains additional knowledge about a random time. This random time can…
Covered bonds are a specific example of senior secured debt. If the issuer of the bonds defaults the proceeds of the assets in the cover pool are used for their debt service. If in this situation the cover pool proceeds do not suffice for…
The increased complexity of infrastructure systems has resulted in critical interdependencies between multiple networks---communication systems require electricity, while the normal functioning of the power grid relies on communication…
The present paper introduces a structural framework to model dependent defaults, with a particular interest in their contagion.