Related papers: Sovereign Default Risk and Uncertainty Premia

We present the qGaussian generalization of the Merton framework, which takes into account slow fluctuations of the volatility of the firms market value of financial assets. The minimal version of the model depends on the Tsallis entropic…

We analyze cascades of defaults in an interbank loan market. The novel feature of this study is that the network structure and the size distribution of banks are derived from empirical data. We find that the ability of a defaulted…

We consider a patient risk models which has access to patient features such as vital signs, lab values, and prior history but does not have access to a patient's diagnosis. For example, this occurs in a model deployed at intake time for…

In this work we show that prediction uncertainty estimates gleaned from deep learning models can be useful inputs for influencing the relative allocation of risk capital across trades. In this way, consideration of uncertainty is important…

This paper proposes a public-private insurance scheme for earthquakes and floods in Italy in which property-owners, the insurer and the government co-operate in risk financing. Our model departs from the existing literature by describing a…

This paper analyzes the bank lending channel and the heterogeneous effects on the euro area, providing evidence that the channel is indeed working. The analysis of the transmission mechanism is based on structural impulse responses to an…

We develop a deep learning model of multi-period mortgage risk and use it to analyze an unprecedented dataset of origination and monthly performance records for over 120 million mortgages originated across the US between 1995 and 2014. Our…

We introduce an arbitrage-free framework for robust valuation adjustments. An investor trades a credit default swap portfolio with a risky counterparty, and hedges credit risk by taking a position in defaultable bonds. The investor does not…

Public debt is one of the important economic variables that quantitatively describes a nation's economy. Because bankruptcy is a risk faced even by institutions as large as governments (e.g. Iceland), national debt should be strictly…

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…

In this short paper, we study the simulation of a large system of stochastic processes subject to a common driving noise and fast mean-reverting stochastic volatilities. This model may be used to describe the firm values of a large pool of…

The impact of a stress scenario of default events on the loss distribution of a credit portfolio can be assessed by determining the loss distribution conditional on these events. While it is conceptually easy to estimate loss distributions…

Economists often estimate economic models on data and use the point estimates as a stand-in for the truth when studying the model's implications for optimal decision-making. This practice ignores model ambiguity, exposes the decision…

We develop a market model in which products generate state-dependent potential hidden charges. Firms differ in their ability to realize this potential. Unlike firms, consumers do not observe the state. They try to infer hidden charges from…

Capacity expansion models are frequently used to inform multi-billion dollar grid infrastructure decisions, a context in which there is significant uncertainty surrounding the future need for and performance of such infrastructure. However,…

We propose a diffusion process to describe the global dynamic evolution of credit operations at a national level given observed operations at a subnational level in a sovereign country. Empirical analysis with a unique dataset from…

We propose a model for the credit markets in which the random default times of bonds are assumed to be given as functions of one or more independent "market factors". Market participants are assumed to have partial information about each of…

Credit capital requirements in Internal Rating Based approaches require the calibration of two key parameters: the probability of default and the loss-given-default. This letter considers the uncertainty about these two parameters and…

A direct method for calculating default rates by industry and target corporate segments is not possible given the lack of statistical data. The proposed paper considers a model for filtering the dynamics of the probability of default of…

The vast majority of the literature on stochastic semidefinite programs (stochastic SDPs) with recourse is concerned with risk-neutral models. In this paper, we introduce mean-risk models for stochastic SDPs and study structural properties…