Related papers: Model risk on credit risk
Network theory proved recently to be useful in the quantification of many properties of financial systems. The analysis of the structure of investment portfolios is a major application since their eventual correlation and overlap impact the…
We propose a unified structural credit risk model incorporating both insolvency and illiquidity risks, in order to investigate how a firm's default probability depends on the liquidity risk associated with its financing structure. We assume…
The instability of the financial system as experienced in recent years and in previous periods is often linked to credit defaults, i.e., to the failure of obligors to make promised payments. Given the large number of credit contracts, this…
The crowd panic and its contagion play non-negligible roles at the time of the stock crash, especially for China where inexperienced investors dominate the market. However, existing models rarely consider investors in networking stocks and…
This article proposes a method for measuring the latent risks involved in the recovery process of non performing loans in financial institutions and business firms that deal with collection and recovery processes. To that end, we apply the…
Recently, large-scale cascading failures in complex systems have garnered substantial attention. Such extreme events have been treated as an integral part of the self-organized criticality (SOC). Recent empirical work has suggested that…
How, and to what extent, does an interconnected financial system endogenously amplify external shocks? This paper attempts to reconcile some apparently different views emerged after the 2008 crisis regarding the nature and the relevance of…
We develop a stochastic macro-financial model in continuous time by integrating two specifications of the Keen economic framework with a financial market driven by a jump-diffusion process. The economic block of the model combines monetary…
Sustaining efficiency and stability by properly controlling the equity to asset ratio is one of the most important and difficult challenges in bank management. Due to unexpected and abrupt decline of asset values, a bank must closely…
This paper generalizes Moody's correlated binomial default distribution for homogeneous (exchangeable) credit portfolio, which is introduced by Witt, to the case of inhomogeneous portfolios. As inhomogeneous portfolios, we consider two…
Diffusion in a linear potential in the presence of position-dependent killing is used to mimic a default process. Different assumptions regarding transport coefficients, initial conditions, and elasticity of the killing measure lead to…
Empirical evidence reveals that contagion processes often occur with competition of simple and complex contagion, meaning that while some agents follow simple contagion, others follow complex contagion. Simple contagion refers to spreading…
The dual risk model is a popular model in finance and insurance, which is often used to model the wealth process of a venture capital or high tech company. Optimal dividends have been extensively studied in the literature for a dual risk…
This article extends the autoregressive count time series model class by allowing for a model with regimes, that is, some of the parameters in the model depend on the state of an unobserved Markov chain. We develop a quasi-maximum…
Systemic financial risk refers to the simultaneous failure or destabilization of multiple financial institutions, often triggered by contagion mechanisms or common exposures to shocks. In this paper, we present a dynamical model of bank…
With the growing digital transformation of the worldwide economy, cyber risk has become a major issue. As 1 % of the world's GDP (around $1,000 billion) is allegedly lost to cybercrime every year, IT systems continue to get increasingly…
We investigate the credit risk model defined in Hatchett & K\"{u}hn under more general assumptions, in particular using a general degree distribution for sparse graphs. Expanding upon earlier results, we show that the model is exactly…
Default risk calculus plays a crucial role in portfolio optimization when the risky asset is under threat of bankruptcy. However, traditional stochastic control techniques are not applicable in this scenario, and additional assumptions are…
Credit default prediction is a tabular learning problem with severe class imbalance, heterogeneous features, and tight latency budgets. Tabular Foundation Models (TFMs) approach this problem through in-context learning, which makes their…
This study evaluates the performance of various classifiers in three distinct models: response, risk, and response-risk, concerning credit card mail campaigns and default prediction. In the response model, the Extra Trees classifier…