Related papers: Hedging of defaultable claims in a structural mode…
We investigate the impact of available information on the estimation of the default probability within a generalized structural model for credit risk. The traditional structural model where default is triggered when the value of the firm's…
In the paper [Hainaut, D. and Colwell, D.B., {\rm A structural model for credit risk with switching processes and synchronous jumps}, The European Journal of Finance 22(11) (2016): 1040-1062], the authors exploit a synchronous-jump…
Excessive leverage, i.e. the abuse of debt financing, is considered one of the primary factors in the default of financial institutions. Systemic risk results from correlations between individual default probabilities that cannot be…
We develop a generalization of the Black-Cox structural model of default risk. The extended model captures uncertainty related to firm's ability to avoid default even if company's liabilities momentarily exceeding its assets. Diffusion in a…
We propose a model in which, in exchange to the payment of a fixed transaction cost, an insurance company can choose the retention level as well as the time at which subscribing a perpetual reinsurance contract. The surplus process of the…
The Constant Elasticity of Variance (CEV) model is mathematically presented and then used in a Credit-Equity hybrid framework. Next, we propose extensions to the CEV model with default: firstly by adding a stochastic volatility diffusion…
Dynamic hedging of an European option under a general local volatility model with small linear transaction costs is studied. A continuous control version of Leland's strategy that asymptotically replicates the payoff is constructed. An…
We set up a structural model to study credit risk for a portfolio containing several or many credit contracts. The model is based on a jump--diffusion process for the risk factors, i.e. for the company assets. We also include correlations…
We study superhedging of contingent claims with physical delivery in a discrete-time market model with convex transaction costs. Our model extends Kabanov's currency market model by allowing for nonlinear illiquidity effects. We show that…
In this paper, a new approach for solving the problems of pricing and hedging derivatives is introduced in a general frictionless market setting. The method is applicable even in cases where an equivalent local martingale measure fails to…
We consider a structural default model in an interconnected banking network as in Lipton [International Journal of Theoretical and Applied Finance, 19(6), 2016], with mutual obligations between each pair of banks. We analyse the model…
In the context of model order reduction of parametric elliptic problems, we present a methodology to reconstruct a conforming flux from a given reduced solution, that is locally conservative with respect to the underlying finite element…
The structural default model of Lipton and Sepp, 2009 is generalized for a set of banks with mutual interbank liabilities whose assets are driven by correlated Levy processes with idiosyncratic and common components. The multi-dimensional…
We study the pricing and hedging of derivative securities with uncertainty about the volatility of the underlying asset. Rather than taking all models from a prespecified class equally seriously, we penalise less plausible ones based on…
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.…
The standard mixed finite element approximations of Hodge Laplace problems associated with the de Rham complex are based on proper discrete subcomplexes. As a consequence, the exterior derivatives, which are local operators, are computed…
In the paper we study dynamics of the arbitrage prices of credit default swaps within a hazard process model of credit risk. We derive these dynamics without postulating that the immersion property is satisfied between some relevant…
This paper begins with a study on the dual representations of risk and regret measures and their impact on modeling multistage decision making under uncertainty. A relationship between risk envelopes and regret envelopes is established by…
One way to analyze Cyber-Physical Systems is by modeling them as hybrid automata. Since reachability analysis for hybrid nonlinear automata is a very challenging and computationally expensive problem, in practice, engineers try to solve the…
This paper focuses on modelling loss reserving to pay outstanding claims. As the amount liable on any given claim is not known until settlement, we propose a flexible model via heavy-tailed and skewed distributions to deal with outstanding…