Related papers: Efficient solution of structural default models wi…
We show how to analyze and interpret the correlation structures, the conditional expectation values and correlation coefficients of exchangeable Bernoulli random variables. We study implied default distributions for the iTraxx-CJ tranches…
Continuous-time stochastic systems have attracted a lot of attention recently, due to their wide-spread use in finance for modelling price-dynamics. More recently models taking into accounts shocks have been developed by assuming that the…
Under the International Financial Reporting Standards (IFRS) 9, credit losses ought to be recognised timeously and accurately. This requirement belies a certain degree of dynamicity when estimating the constituent parts of a credit loss…
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…
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…
This paper considers general term structure models like the ones appearing in portfolio credit risk modelling or life insurance. We give a general model starting from families of forward rates driven by infinitely many Brownian motions and…
The ruin probability in the classical Brownian risk model can be explicitly calculated for both finite and infinite-time horizon. This is not the case for the simultaneous ruin probability in two-dimensional Brownian risk model. Resorting…
We study an optimal investment/consumption problem in a model capturing market and credit risk dependencies. Stochastic factors drive both the default intensity and the volatility of the stocks in the portfolio. We use the martingale…
We generalize the celebrated coagulation-fragmentation duality of Pitman (1999), originally established for the PD$(\alpha,\theta)$ laws of Pitman and Yor (1997), resolving a two-decade open problem. Our framework extends the duality to…
According to theoretical models of valuing risky corporate securities, risk of default is primary component in overall yield spread. However, sizable empirical literature considers it otherwise by giving more importance to non-default risk…
In this paper we introduce a generalized extension of the Eisenberg-Noe model of financial contagion to allow for time dynamics of the interbank liabilities, including a dynamic examination of default risk. This framework separates the cash…
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…
The aim of this work is to provide fast and accurate approximation schemes for the Monte-Carlo pricing of derivatives in the L\'evy LIBOR model of Eberlein and \"Ozkan (2005). Standard methods can be applied to solve the stochastic…
A progress report on two recent theoretical approaches proposed to understand the physics of irreversible fractal aggregates showing up a structural transition from a rather dense to a more multibranched growth is presented. In the first…
Survival analysis has become a standard approach for modelling time to default by time-varying covariates in credit risk. Unlike most existing methods that implicitly assume a stationary data-generating process, in practise, mortgage…
As impressively shown by the financial crisis in 2007/08, contagion effects in financial networks harbor a great threat for the stability of the entire system. Without sufficient capital requirements for banks and other financial…
In this letter, I consider the issue of pricing risky debt by following Merton's approach. I generalize Merton's results to the case where the interest rate is modeled by the CIR term structure. Exact closed forms are provided for the risky…
We extend the now classic structural credit modeling approach of Black and Cox to a class of "two-factor" models that unify equity securities such as options written on the stock price, and credit products like bonds and credit default…
The continuous observation of the financial markets has identified some stylized facts which challenge the conventional assumptions, promoting the born of new approaches. On the one hand, the long-range dependence has been faced replacing…
Levy copulas are the most general concept to capture jump dependence in multivariate Levy processes. They translate the intuition and many features of the copula concept into a time series setting. A challenge faced by both, distributional…