Related papers: On Modeling Economic Default Time: A Reduced-Form …
Evaluating the financial performance of manufacturing firms requires consideration of both the time value of money and the relative importance of multiple decision criteria. Conventional approaches relying solely on deterministic…
We study a credit risk model which captures effects of economic interactions on a firm's default probability. Economic interactions are represented as a functionally defined graph, and the existence of both cooperative, and competitive,…
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…
The paper concerns primal and dual representations as well as time consistency of set-valued dynamic risk measures. Set-valued risk measures appear naturally when markets with transaction costs are considered and capital requirements can be…
We find that factors explaining bank loan recovery rates vary depending on the state of the economic cycle. Our modeling approach incorporates a two-state Markov switching mechanism as a proxy for the latent credit cycle, helping to explain…
It is a well known fact that recovery rates tend to go down when the number of defaults goes up in economic downturns. We demonstrate how the loss given default model with the default and recovery dependent via the latent systematic risk…
Measuring the corporate default risk is broadly important in economics and finance. Quantitative methods have been developed to predictively assess future corporate default probabilities. However, as a more difficult yet crucial problem,…
Is the present economic and financial crisis similar to some previous one? It would be so nice to prove that universality laws exist for predicting such rare events under a minimum set of realistic hypotheses. First, I briefly recall…
We discuss the parameter estimation of the probability of default (PD), the correlation between the obligors, and a phase transition. In our previous work, we studied the problem using the beta-binomial distribution. A non-equilibrium phase…
This paper develops a two-dimensional structural framework for valuing credit default swaps and corporate bonds in the presence of default contagion. Modelling the values of related firms as correlated geometric Brownian motions with…
We theorize the financial health of a company and the risk of its default. A company is financially healthy as long as its equilibrium in the financial system is maintained, which depends on the cost attributable to the probability that…
This paper develops a continuous-time filtering framework for estimating a hazard rate subject to an unobservable change-point. This framework naturally arises in both financial and insurance applications, where the default intensity of a…
Mortgage default rates, on the one hand, serve as a measure of economic health to support decision-making by insurance companies, and on the other hand, is a key risk factor in the asset-liability management (ALM) practice, as mortgage…
Pricing formulae for defaultable corporate bonds with discrete coupons under consideration of the government taxes in the united model of structural and reduced form models are provided. The aim of this paper is to generalize the…
In the pursuit of modelling a loan's probability of default (PD) over its lifetime, repeat default events are often ignored when using Cox Proportional Hazard (PH) models. Excluding such events may produce biased and inaccurate…
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 introduce the general arbitrage-free valuation framework for counterparty risk adjustments in presence of bilateral default risk, including default of the investor. We illustrate the symmetry in the valuation and show that the adjustment…
We compare two different bilateral counterparty valuation adjustment (BVA) formulas. The first formula is an approximation and is based on subtracting the two unilateral Credit Valuation Adjustment (CVA)'s formulas as seen from the two…
In this paper we review an approach to estimating the causal effect of a time-varying treatment on time to some event of interest. This approach is designed for the situation where the treatment may have been repeatedly adapted to patient…
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…