Related papers: Quantifying the Impact of Leveraging and Diversifi…

The so-called risk diversification principle is analyzed, showing that its convenience depends on individual characteristics of the risks involved and the dependence relationship among them. ----- Se analiza el principio de…

Interbank contagion can theoretically exacerbate losses in a financial system and lead to additional cascade defaults during downturn. In this paper we produce default analysis using both regression and neural network models to verify…

Intuitively, the default risk of a single borrower is higher when her or his assets and debt are denominated in different currencies. Additionally, the default dependence of borrowers with assets and debt in different currencies should be…

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 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…

We study large deviations and rare default clustering events in a dynamic large heterogeneous portfolio of interconnected components. Defaults come as Poisson events and the default intensities of the different components in the system…

Risks threatening modern societies form an intricately interconnected network that often underlies crisis situations. Yet, little is known about how risk materializations in distinct domains influence each other. Here we present an approach…

In spite of the growing theoretical literature on cascades of failures in interbank lending networks, empirical results seem to suggest that networks of direct exposures are not the major channel of financial contagion. In this paper we…

The issue of model risk in default modeling has been known since inception of the Academic literature in the field. However, a rigorous treatment requires a description of all the possible models, and a measure of the distance between a…

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…

We introduce a dynamic and stochastic interbank model with an endogenous notion of distress contagion, arising from rational worries about future defaults and ensuing losses. This entails a mark-to-market valuation adjustment for interbank…

We study the problem of optimal long term portfolio selection with a view to beat a benchmark. Two kinds of objectives are considered. One concerns the probability of outperforming the benchmark and seeks either to minimise the decay rate…

We consider insurance derivatives depending on an external physical risk process, for example a temperature in a low dimensional climate model. We assume that this process is correlated with a tradable financial asset. We derive optimal…

In this work we study the individual strategies carried out by agents undergoing transactions in wealth exchange models. We analyze the role of risk propensity in the behavior of the agents and find a critical risk, such that agents with…

We test the hypothesis that interconnections across financial institutions can be explained by a diversification motive. This idea stems from the empirical evidence of the existence of long-term exposures that cannot be explained by a…

We set up a structural model to study credit risk for a portfolio containing several or many credit contracts. The model is based on a jump--diffusion process for the risk factors, i.e. for the company assets. We also include correlations…

One of the most defining features of the global financial network is its inherent complex and intertwined structure. From the perspective of systemic risk it is important to understand the influence of this network structure on default…

This work proposes an augmented variant of DebtRank with uncertainty intervals as a method to investigate and assess systemic risk in financial networks, in a context of incomplete data. The algorithm is tested against a default contagion…

Portfolio optimisation typically aims to provide an optimal allocation that minimises risk, at a given return target, by diversifying over different investments. However, the potential scope of such risk diversification can be limited if…

The present paper provides a multi-period contagion model in the credit risk field. Our model is an extension of Davis and Lo's infectious default model. We consider an economy of n firms which may default directly or may be infected by…