Related papers: Collateral-Enhanced Default Risk
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…
This paper builds a finite-horizon model to study the role of physical collateral in a model of strategic defaults, when the borrower can develop reputation for honesty. Asset ownership increases attractiveness of the reputational channel:…
Diffusion in a linear potential in the presence of position-dependent killing is used to mimic a default process. Different assumptions regarding transport coefficients, initial conditions, and elasticity of the killing measure lead to…
This paper presents a new model for pricing financial derivatives subject to collateralization. It allows for collateral arrangements adhering to bankruptcy laws. As such, the model can back out the market price of a collateralized…
We investigate the impact of available information on the estimation of the default probability within a generalized structural model for credit risk. The traditional structural model where default is triggered when the value of the firm's…
Excessive leverage, i.e. the abuse of debt financing, is considered one of the primary factors in the default of financial institutions. Systemic risk results from correlations between individual default probabilities that cannot be…
This paper generalizes the framework for arbitrage-free valuation of bilateral counterparty risk to the case where collateral is included, with possible re-hypotecation. We analyze how the payout of claims is modified when collateral…
We propose a novel credit default model that takes into account the impact of macroeconomic information and contagion effect on the defaults of obligors. We use a set-valued Markov chain to model the default process, which is the set of all…
Corporate defaults may be triggered by some major market news or events such as financial crises or collapses of major banks or financial institutions. With a view to develop a more realistic model for credit risk analysis, we introduce a…
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 propose two structural models for stochastic losses given default which allow to model the credit losses of a portfolio of defaultable financial instruments. The credit losses are integrated into a structural model of default events…
We consider a structural default model in an interconnected banking network as in Lipton [International Journal of Theoretical and Applied Finance, 19(6), 2016], with mutual obligations between each pair of banks. We analyse the model…
While defaults are rare events, losses can be substantial even for credit portfolios with a large number of contracts. Therefore, not only a good evaluation of the probability of default is crucial, but also the severity of losses needs to…
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…
Over-the-counter derivatives have contributed significantly to the effectiveness and efficiency of the international financial system but also entail significant counterparty credit risk. Collateralization is one of the most important and…
We propose a multivariate framework for modeling dependent default times that extends the classical Cox process by incorporating both common and idiosyncratic shocks. Our construction uses c\`adl\`ag, increasing processes to model…
The risk of a credit portfolio depends crucially on correlations between the probability of default (PD) in different economic sectors. Often, PD correlations have to be estimated from relatively short time series of default rates, and the…
This article presents a new model for valuing a credit default swap (CDS) contract that is affected by multiple credit risks of the buyer, seller and reference entity. We show that default dependency has a significant impact on asset…
We compare observed corporate cumulative default probabilities to those calculated using a stochastic model based on an extension of the work of Black and Cox and find that corporations default as if via diffusive dynamics. The model, based…
In this paper, we deal with an axiomatic approach to default risk. We introduce the notion of a default risk measure, which generalizes the classical probability of default (PD), and allows to incorporate model risk in various forms. We…