Related papers: Two Models of Stochastic Loss Given Default
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…
In this paper, we propose a dynamical model to capture cascading failures among interconnected organizations in the global financial system. Failures can take the form of bankruptcies, defaults, and other insolvencies. The network that…
This paper studies the consequences of capturing non-linear dependence among the covariates that drive the default of different obligors and the overall riskiness of their credit portfolio. Joint default modeling is, without loss of…
The scope of financial systemic risk research encompasses a wide range of interbank channels and effects, including asset correlation shocks, default contagion, illiquidity contagion, and asset fire sales. This paper introduces a financial…
This paper introduces a novel stochastic model for credit spreads. The stochastic approach leverages the diffusion of default intensities via a CIR++ model and is formulated within a risk-neutral probability space. Our research primarily…
The present paper introduces a structural framework to model dependent defaults, with a particular interest in their contagion.
As impressively shown by the financial crisis in 2007/08, contagion effects in financial networks harbor a great threat for the stability of the entire system. Without sufficient capital requirements for banks and other financial…
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…
A simple banking network model is proposed which features multiple waves of bank defaults and is analytically solvable in the limiting case of an infinitely large homogeneous network. The model is a collection of nodes representing…
A new methodology for incorporating LGD correlation effects into the Basel II risk weight functions is introduced. This methodology is based on modelling of LGD and default event with a single loss variable. The resulting formulas for…
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 paper, we study a continuous time structural asset value model for two correlated firms using a two-dimensional Brownian motion. We consider the situation of incomplete information, where the information set available to the market…
This paper explores the capabilities of the Constant Elasticity of Variance model driven by a mixed-fractional Brownian motion (mfCEV) [Axel A. Araneda. The fractional and mixed-fractional CEV model. Journal of Computational and Applied…
In this paper we propose a copula contagion mixture model for correlated default times. The model includes the well known factor, copula, and contagion models as its special cases. The key advantage of such a model is that we can study the…
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…
This study proposes a stochastic model for loss-given-default (LGD) which provides the LGD distribution based on credit market and company-specific financial conditions. The model utilizes last passage time of a linear diffusion…
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 propose a stochastic model allowing property and casualty insurers with multiple business lines to measure their liabilities for incurred claims risk and calculate associated capital requirements. Our model includes many desirable…
Regression models for limited continuous dependent variables having a non-negligible probability of attaining exactly their limits are presented. The models differ in the number of parameters and in their flexibility. Fractional data being…
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…