Related papers: Dynamic Defaultable Term Structure Modelling beyon…
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…
The accelerated failure time (AFT) model is widely used to analyze relationships between variables in the presence of censored observations. However, this model relies on some assumptions such as the error distribution, which can lead to…
We present a family of models for the term structure of interest rates which describe the interest rate curve as a stochastic process in a Hilbert space. We start by decomposing the deformations of the term structure into the variations of…
The research reveals the existence of a constant characteristic time of preparatory micro-structural processes before the onset of macro-failure at various high loading rates of brittle and quasi-brittle materials. The presence of this…
In this paper we discuss a credit risk model with a pure jump L\'evy process for the asset value and an unobservable random barrier. The default time is the first time when the asset value falls below the barrier. Using the…
Bond rating Transition Probability Matrices (TPMs) are built over a one-year time-frame and for many practical purposes, like the assessment of risk in portfolios or the computation of banking Capital Requirements (e.g. the new IFRS 9…
We consider a financial market with zero-coupon bonds that are exposed to credit and liquidity risk. We revisit the famous Jarrow & Turnbull setting in order to account for these two intricately intertwined risk types. We utilise the…
In this work we develop a tractable structural model with analytical default probabilities depending on a random default barrier and possibly random volatility ideally associated with a scenario based underlying firm debt. We show how to…
The main purpose of this paper is to extend the information-based asset-pricing framework of Brody-Hughston-Macrina to a more general set-up. We include a wider class of models for market information and in contrast to the original paper,…
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…
The fragility of financial systems was starkly demonstrated in early 2023 through a cascade of major bank failures in the United States, including the second, third, and fourth largest collapses in the US history. The highly interdependent…
In this paper, we present a unified framework for decision making under uncertainty. Our framework is based on the composite of two risk measures, where the inner risk measure accounts for the risk of decision given the exact distribution…
In this paper, we introduce a new extension of the generalized linear failure rate distributions. It includes some well-known lifetime distributions such as extension of generalized exponential and generalized linear failure rate…
In this work, I generalize Merton's approach of pricing risky debt to the case where the interest rate risk is modeled by the CIR term structure. Closed form result for pricing the debt is given for the case where the firm value has…
Conic martingales refer to Brownian martingales evolving between bounds. Among other potential applications, they have been suggested for the sake of modeling conditional survival probabilities under partial information, as usual in…
A new procedure is presented for the objective comparison and evaluation of default definitions. This allows the lender to find a default threshold at which the financial loss of a loan portfolio is minimised, in accordance with Basel II.…
With the reform of interest rate benchmarks, interbank offered rates (IBORs) like LIBOR have been replaced by risk-free rates (RFRs), such as the Secured Overnight Financing Rate (SOFR) in the U.S. and the Euro Short-Term Rate (\euro STR)…
In this work we introduce a model of default contagion that combines the approaches of Eisenberg-Noe interbank networks and dynamic mean field interactions. The proposed contagion mechanism provides an endogenous rule for early defaults in…
We propose a dynamic model of dependence structure between financial institutions within a financial system and we construct measures for dependence and financial instability. Employing Markov structures of joint credit migrations, our…
In this paper, we consider a generic interest rate market in the presence of roll-over risk, which generates spreads in spot/forward term rates. We do not require classical absence of arbitrage and rely instead on a minimal market viability…