Related papers: Multi Currency Credit Default Swaps Quanto effects…
We derived similar to Bo et al. (2010) results but in the case when the dynamics of the FX rate is driven by a general Merton jump-diffusion process. The main results of our paper are as follows: 1) formulas for the Esscher transform…
Does euro adoption affect long-run economic growth? Existing evidence is mixed, reflecting limited treated countries, long horizons that challenge inference, and heterogeneity across member states. We estimate causal dynamic and…
In this paper, we propose a method that provides a useful technique to compare relationship between risks involved that takes customer become defaulter and debt collection process that might make this defaulter recovered. Through estimation…
Changes in collateralization have been implicated in significant default (or near-default) events during the financial crisis, most notably with AIG. We have developed a framework for quantifying this effect based on moving between…
It had been believed in the conventional practice that the risk of a bank going bankrupt is lessened in a straightforward manner by transferring the risk of loan defaults. But the failure of American International Group in 2008 posed a more…
As it is known in the finance risk and macroeconomics literature, risk-sharing in large portfolios may increase the probability of creation of default clusters and of systemic risk. We review recent developments on mathematical and…
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…
Understanding the stochastic behavior of currency exchange rates is critical for assessing financial stability and anticipating market transitions. In this study, we investigate the empirical dynamics of the USD exchange rate in three…
This paper examines how shocks to currency volatilities predict exchange rates. Using option-implied volatilities, we construct a dynamic, directed network of volatility connections. Currencies that transmit more volatility shocks, which…
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…
This study contributes to understanding Valuation Adjustments (xVA) by focussing on the dynamic hedging of Credit Valuation Adjustment (CVA), corresponding Profit & Loss (P&L) and the P&L explain. This is done in a Monte Carlo simulation…
The current research on credit risk is primarily focused on modeling default probabilities. Recovery rates are often treated as an afterthought; they are modeled independently, in many cases they are even assumed constant. This is despite…
This work studies the valuation of currency options in markets suffering from a financial crisis. We consider a European option where the underlying asset is a foreign currency. We assume that the value of the underlying asset is a…
We propose Monte Carlo calibration algorithms for three models: local volatility with stochastic interest rates, stochastic local volatility with deterministic interest rates, and finally stochastic local volatility with stochastic interest…
Did sovereign default risk affect macroeconomic activity through firms' access to credit during the European sovereign debt crisis? We investigate this question by a estimating a structural panel vector autoregressive model for Italy,…
The aim of this paper is to determine the Value at Risk (VaR) of the portfolio consisting of long positions in foreign currencies on an emerging market. Basing on empirical data we restrict ourselves to the case when the tail parts of…
Under the International Financial Reporting Standards (IFRS) 9, credit losses ought to be recognised timeously and accurately. This requirement belies a certain degree of dynamicity when estimating the constituent parts of a credit loss…
In finance, durations between successive transactions are usually modeled by the autoregressive conditional duration model based on a continuous distribution omitting zero values. Zero or close-to-zero durations can be caused by either…
We introduce a dynamic model of the default waterfall of derivatives CCPs and propose a risk sensitive method for sizing the initial margin (IM), and the default fund (DF) and its allocation among clearing members. Using a Markovian…
We provide a general HJM framework for forward contracts written on abstract market indices with arbitrary fixing and payment adjustments, and featuring collateralization in any currency denominations. In view of this, we first provide a…