Related papers: Model risk on credit risk
Return-risk models are the two pillars of modern portfolio theory, which are widely used to make decisions in choosing the loan portfolio of a bank. Banks and other financial institutions are subjected to limited liability protection.…
Credit and liquidity risks represent main channels of financial contagion for interbank lending markets. On one hand, banks face potential losses whenever their counterparties are under distress and thus unable to fulfill their obligations.…
The latest financial crisis has painfully revealed the dangers arising from a globally interconnected financial system. Conventional approaches based on the notion of the existence of equilibrium and those which rely on statistical…
We introduce a dynamic optimization framework to analyze optimal portfolio allocations within an information driven contagious distress model. The investor allocates his wealth across several stocks whose growth rates and distress…
The rapid expansion of cross-border e-commerce (CBEC) has created significant opportunities for small- and medium-sized sellers, yet financing remains a critical challenge due to their limited credit histories. Third-party logistics…
In classical contagion models, default systems are Markovian conditionally on the observation of their stochastic environment, with interacting intensities. This necessitates that the environment evolves autonomously and is not influenced…
We present a general framework for the estimation of corporate default based on a firm's capital structure, when its assets are assumed to follow a pure jump L\'evy processes; this setup provides a natural extension to usual default metrics…
We show that the Tangled Nature model can be interpreted as a general formulation of the quasi-species model by Eigen et al. in a frequency dependent fitness landscape. We present a detailed theoretical derivation of the mutation threshold,…
Complex contagion adoption dynamics are characterised by a node being more likely to adopt after multiple network neighbours have adopted. We show how to construct multi-type branching processes to approximate complex contagion adoption…
Financial markets are exposed to systemic risk, the risk that a substantial fraction of the system ceases to function and collapses. Systemic risk can propagate through different mechanisms and channels of contagion. One important form of…
The 2023 U.S. banking crisis propagated not through direct financial linkages but through a high-frequency, information-based contagion channel. This paper moves beyond exploration analysis to test the "too-similar-to-fail" hypothesis,…
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,…
In performative prediction, the deployment of a predictive model triggers a shift in the data distribution. As these shifts are typically unknown ahead of time, the learner needs to deploy a model to get feedback about the distribution it…
Microfinance, despite its significant potential for poverty reduction, is facing sustainability hardships due to high default rates. Although many methods in regular finance can estimate credit scores and default probabilities, these…
A promising avenue for improving the effectiveness of behavioral-based malware detectors would be to combine fast traditional machine learning detectors with high-accuracy, but time-consuming deep learning models. The main idea would be to…
Prior social contagion models consider the spread of either one contagion at a time on interdependent networks or multiple contagions on single layer networks or under assumptions of competition. We propose a new threshold model for the…
For the past two decades investors have observed long memory and highly correlated behavior of asset classes that does not fit into the framework of Modern Portfolio Theory. Custom correlation and standard deviation estimators consider…
Digital banking and online communication have made modern bank runs faster and more networked than the canonical queue-at-the-branch setting. While equilibrium models explain why strategic complementarities generate run risk, they offer…
Consider an insurance company exposed to a stochastic economic environment that contains two kinds of risk. The first kind is the insurance risk caused by traditional insurance claims, and the second kind is the financial risk resulting…
Many animal groups are heterogeneous and may even consist of individuals of different species, called mixed-species flocks. Mathematical and computational models of collective animal movement behaviour, however, typically assume that groups…