Related papers: On Modeling Economic Default Time: A Reduced-Form …
An agent-based model for firms' dynamics is developed. The model consists of firm agents with identical characteristic parameters and a bank agent. Dynamics of those agents is described by their balance sheets. Each firm tries to maximize…
The aim of this paper is to quantify and manage systemic risk caused by default contagion in the interbank market. We model the market as a random directed network, where the vertices represent financial institutions and the weighted edges…
Model approximations are common practice when estimating structural or quasi-structural models. The paper considers the econometric properties of estimators that utilize projections to reimpose information about the exact model in the form…
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…
An important question in economics is how people choose between different payments in the future. The classical normative model predicts that a decision maker discounts a later payment relative to an earlier one by an exponential function…
We develop a model for credit rating migration that accounts for the impact of economic state fluctuations on default probabilities. The joint process for the economic state and the rating is modelled as a time-homogeneous Markov chain.…
Estimating the covariance of asset returns, i.e., the risk model, is a key component of financial portfolio construction and evaluation. Most risk modeling approaches produce a factor model that decomposes the asset variability into two…
We consider the intensity-based approach for the modeling of default times of one or more companies. In this approach the default times are defined as the jump times of a Cox process, which is a Poisson process conditional on the…
In this paper we develop a tractable structural model with analytical default probabilities depending on some dynamics parameters, and we show how to calibrate the model using a chosen number of Credit Default Swap (CDS) market quotes. We…
We study an optimal investment problem under default risk where related information such as loss or recovery at default is considered as an exogenous random mark added at default time. Two types of agents who have different levels of…
This paper focuses on a discrete-time risk model in which both insurance risk and financial risk are taken into account. We study the asymptotic behaviour of the ruin probability and the tail probability of the aggregate risk amount.…
Correlations among stock returns during volatile markets differ substantially compared to those from quieter markets. During times of financial crisis, it has been observed that traditional dependency in global markets breaks down. However,…
Accelerated failure time (AFT) models are used widely in medical research, though to a much lesser extent than proportional hazards models. In an AFT model, the effect of covariates act to accelerate or decelerate the time to event of…
Financial institutions and insurance companies that analyze the evolution and sources of profits and losses often look at risk factors only at discrete reporting dates, ignoring the detailed paths. Continuous-time decompositions avoid this…
Corporate insolvency can have a devastating effect on the economy. With an increasing number of companies making expansion overseas to capitalize on foreign resources, a multinational corporate bankruptcy can disrupt the world's financial…
In this note, we develop stock option price approximations for a model which takes both the risk o default and the stochastic volatility into account. We also let the intensity of defaults be influenced by the volatility. We show that it…
We address two mathematical aspects of the Bir\'o--N\'eda dynamical model, recently applied in the statistical analysis of several and varied complex phenomena. First, we show that a given implicit assumption ceases to be valid outside the…
We consider the problem of estimating the common time of a change in the mean parameters of panel data when dependence is allowed between the panels in the form of a common factor. A CUSUM type estimator is proposed, and we establish first…
Predicting future operational risk losses gives rise to a significant challenge due to the heterogeneous and time-dependent structures present in real-world data. Furthermore, stress test exercises require examining the relationship with…
In this paper we investigate Gaussian risk models which include financial elements such as inflation and interest rates. For some general models for inflation and interest rates, we obtain an asymptotic expansion of the finite-time ruin…