Related papers: Capital requirements with defaultable securities
We study financial networks with debt contracts and credit default swaps between specific pairs of banks. Given such a financial system, we want to decide which of the banks are in default, and how much of their liabilities can these…
In this paper, we examine the effect of background risk on portfolio selection and optimal reinsurance design under the criterion of maximizing the probability of reaching a goal. Following the literature, we adopt dependence uncertainty to…
A common problem in risk analysis is to characterize the overall security of a system of valuable assets (e.g., government buildings or communication hubs), and to suggest measures to mitigate any hazards or security threats. Currently,…
Measuring the contribution of a bank or an insurance company to overall systemic risk is a key concern, particularly in the aftermath of the 2007--2009 financial crisis and the 2020 downturn. In this paper, we derive worst-case and…
The Basel II internal ratings-based (IRB) approach to capital adequacy for credit risk plays an important role in protecting the Australian banking sector against insolvency. We outline the mathematical foundations of regulatory capital for…
This paper considers a variant of the classical Cram\'er-Lundberg model that is particularly appropriate in the credit context, with the distinguishing feature that it corresponds to a finite number of obligors. The focus is on computing…
Funding is a cost to trading desks that they see as an input. Current FVA-related literature reflects this by also taking funding costs as an input, usually constant, and always risk-neutral. However, this funding curve is the output from a…
Climate adaptation could yield significant benefits. However, the uncertainty of which future climate scenarios will occur decreases the feasibility of proactively adapting. Climate adaptation projects could be underwritten by benefits paid…
The family of admissible positions in a transaction costs model is a random closed set, which is convex in case of proportional transaction costs. However, the convexity fails, e.g. in case of fixed transaction costs or when only a finite…
We study approachability theory in the presence of constraints. Given a repeated game with vector payoffs, we characterize the pairs of sets (A,D) in the payoff space such that Player 1 can guarantee that the long-run average payoff…
Based on supermodularity ordering properties, we show that convex risk measures of credit losses are nondecreasing w.r.t. credit-credit and, in a wrong-way risk setup, credit-market, covariances of elliptically distributed latent factors.…
According to theoretical models of valuing risky corporate securities, risk of default is primary component in overall yield spread. However, sizable empirical literature considers it otherwise by giving more importance to non-default risk…
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 ongoing concern about systemic risk since the outburst of the global financial crisis has highlighted the need for risk measures at the level of sets of interconnected financial components, such as portfolios, institutions or members of…
This paper studies an optimal investing problem for a retiree facing longevity risk and living standard risk. We formulate the investing problem as a portfolio choice problem under a time-varying risk capacity constraint. We derive the…
Natural capital accounting is important to efforts that attempt to measure the value of nature to decide on how best to trade-off natural resource productive use and conservation. Much work on measuring reciprocal physical stocks and flows…
We consider an insurance company whose surplus is represented by the classical Cramer-Lundberg process. The company can invest its surplus in a risk free asset and in a risky asset, governed by the Black-Scholes equation. There is a…
This work concerns controlled Markov chains with finite state and action spaces. The transition law satisfies the simultaneous Doeblin condition, and the performance of a control policy is measured by the (long-run) risk-sensitive average…
We propose a unified framework for equity and credit risk modeling, where the default time is a doubly stochastic random time with intensity driven by an underlying affine factor process. This approach allows for flexible interactions…
Using one of the key property of copulas that they remain invariant under an arbitrary monotonous change of variable, we investigate the null hypothesis that the dependence between financial assets can be modeled by the Gaussian copula. We…