Related papers: Two Models of Stochastic Loss Given Default

Understanding material failure is critical for designing stronger and lighter structures by identifying weaknesses that could be mitigated. Existing full-physics numerical simulation techniques involve trade-offs between speed, accuracy,…

We consider a portfolio optimization problem in a defaultable market with finitely-many economical regimes, where the investor can dynamically allocate her wealth among a defaultable bond, a stock, and a money market account. The market…

We give a comprehensive review of credit term structure modeling methodologies. The conventional approach to modeling credit term structure is summarized and shown to be equivalent to a particular type of the reduced form credit risk model,…

Credit risk scorecards are logistic regression models, fitted to large and complex data sets, employed by the financial industry to model the probability of default of a potential customer. In order to ensure that a scorecard remains a…

This paper expands traditional stochastic volatility models by allowing for time-varying skewness without imposing it. While dynamic asymmetry may capture the likely direction of future asset returns, it comes at the risk of leading to…

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 work we want to provide a general principle to evaluate the CVA (Credit Value Adjustment) for a vulnerable option, that is an option subject to some default event, concerning the solvability of the issuer. CVA is needed to evaluate…

A controversy involving loan loss provisions in banks concerns their relationship with the business cycle. While international accounting standards for recognizing provisions (incurred loss model) would presumably be pro-cyclical,…

This paper studies the valuation of a class of default swaps with the embedded option to switch to a different premium and notional principal anytime prior to a credit event. These are early exercisable contracts that give the protection…

We develop a generalization of the Black-Cox structural model of default risk. The extended model captures uncertainty related to firm's ability to avoid default even if company's liabilities momentarily exceeding its assets. Diffusion in a…

We propose a model for the credit markets in which the random default times of bonds are assumed to be given as functions of one or more independent "market factors". Market participants are assumed to have partial information about each of…

Quite often, we observe reliability data with two failure modes that may influence each other, resulting in a setting of dependent failure modes. Here, we discuss modelling of censored reliability data with two dependent failure modes by…

We consider the effect of recovery rates on a pool of credit assets. We allow the recovery rate to depend on the defaults in a general way. Using the theory of large deviations, we study the structure of losses in a pool consisting of a…

This article aims to explore an empirical approach to analyze the macroeconomicsdeterminants of default of borrowers. For this purpose, we have measured the impact of the adverse economic conditions on the degradation of the credit…

In the context of a locally risk-minimizing approach, the problem of hedging defaultable claims and their Follmer-Schweizer decompositions are discussed in a structural model. This is done when the underlying process is a finite variation…

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…

Logistic Regression and Support Vector Machine algorithms, together with Linear and Non-Linear Deep Neural Networks, are applied to lending data in order to replicate lender acceptance of loans and predict the likelihood of default of…

This article gives a probabilistic overview of the widely used method of default probability estimation proposed by K. Pluto and D. Tasche. There are listed detailed assumptions and derivation of the inequality where the probability of…

We propose a new model of the liquidity driven banking system focusing on overnight interbank loans. This significant branch of the interbank market is commonly neglected in the banking system modeling and systemic risk analysis. We…

We introduce a continuum model describing data losses in a single node of a packet-switched network (like the Internet) which preserves the discrete nature of the data loss process. {\em By construction}, the model has critical behavior…