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The interconnectedness of financial institutions affects instability and credit crises. To quantify systemic risk we introduce here the PD model, a dynamic model that combines credit risk techniques with a contagion mechanism on the network…
Companies do not operate in a vacuum. As companies move towards an increasingly specialized production function and their reach is becoming truly global, their aptitude in managing and shaping their inter-organizational network is a…
This paper is a contribution to the Proceedings of the Workshop Complexity, Metastability and Nonextensivity held in Erice 20-26 July 2004, to be published by World Scientific. We propose a generalization to Merton's model for evaluating…
This paper presents the experimental process and results of SVM, Gradient Boosting, and an Attention-GRU Hybrid model in predicting the Implied Volatility of rolled-over five-year spread contracts of credit default swaps (CDS) on European…
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…
We present a thorough empirical study on real interest rates by also including risk aversion through the introduction of the market price of risk. With the view of complex systems science and its multidisciplinary approach, we use the…
Systemic risk in banking systems remains a crucial issue that it has not been completely understood. In our toy model, banks are exposed to two sources of risks, namely, market risk from their investments in assets external to the banking…
How to forecast next year's portfolio-wide credit default rate based on last year's default observations and the current score distribution? A classical approach to this problem consists of fitting a mixture of the conditional score…
This paper discusses the valuation of credit default swaps, where default is announced when the reference asset price has gone below certain level from the last record maximum, also known as the high-water mark or drawdown. We assume that…
The purpose of this paper is introducing rigorous methods and formulas for bilateral counterparty risk credit valuation adjustments (CVA's) on interest-rate portfolios. In doing so, we summarize the general arbitrage-free valuation…
Standard measures of effect, including the risk ratio, the odds ratio, and the risk difference, are associated with a number of well-described shortcomings, and no consensus exists about the conditions under which investigators should…
In credit risk literature, the existence of an equivalent martingale measure is stipulated as one of the main assumptions in the hazard process model. Here we show by construction the existence of a measure that turns the discounted stock…
The model is aimed to discriminate the 'good' and the 'bad' companies in Russian corporate sector based on their financial statements data based on Russian Accounting Standards. The data sample consists of 126 Russian public companies-…
Counterparty risk denotes the risk that a party defaults in a bilateral contract. This risk not only depends on the two parties involved, but also on the risk from various other contracts each of these parties holds. In rather informal…
Filiz et al. (2008) proposed a model for the pattern of defaults seen among a group of firms at the end of a given time period. The ingredients in the model are a graph, where the vertices correspond to the firms and the edges describe the…
Several studies have established the predictive power of the yield curve in terms of real economic activity. In this paper we use data for a variety of E.U. countries: both EMU (Germany, France, Italy) and non-EMU members (Sweden and the…
A model is developed to assess the profitability of loans or mortgages with a specified repayment schedule. Financial institutions face two competing risks: default and prepayment, both influenced by the stochastic evolution of credit…
In recent years research on credit risk modelling has mainly focused on default probabilities. Recovery rates are usually modelled independently, quite often they are even assumed constant. Then, however, the structural connection between…
Prepayment risk embedded in fixed-rate mortgages forms a significant fraction of a financial institution's exposure, and it receives particular attention because of the magnitude of the underlying market. The embedded prepayment option…
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…