Related papers: Multi Currency Credit Default Swaps Quanto effects…

We investigate topology and temporal evolution of the foreign currency exchange market viewed from a weighted network perspective. Based on exchange rates for a set of 46 currencies (including precious metals), we construct different…

The drift burst hypothesis postulates the existence of short-lived locally explosive trends in the price paths of financial assets. The recent U.S. equity and treasury flash crashes can be viewed as two high-profile manifestations of such…

We analyze the practical consequences of the bilateral counterparty risk adjustment. We point out that past literature assumes that, at the moment of the first default, a risk-free closeout amount will be used. We argue that the legal…

We consider a structural credit model for a large portfolio of credit risky assets where the correlation is due to a market factor. By considering the large portfolio limit of this system we show the existence of a density process for the…

We discuss price variations distributions in foreign exchange markets, characterizing them both in calendar and business time frameworks. The price dynamics is found to be the result of two distinct processes, a multi-variance diffusion and…

Foreign exchange rates movements exhibit significant cross-correlations even on very short time-scales. The effect of these statistical relationships become evident during extreme market events, such as flash crashes.In this scenario, an…

We introduce an innovative theoretical framework to model derivative transactions between defaultable entities based on the principle of arbitrage freedom. Our framework extends the traditional formulations based on Credit and Debit…

This work proposes an augmented variant of DebtRank with uncertainty intervals as a method to investigate and assess systemic risk in financial networks, in a context of incomplete data. The algorithm is tested against a default contagion…

We present a class of flexible and tractable static factor models for the term structure of joint default probabilities, the factor copula models. These high-dimensional models remain parsimonious with pair-copula constructions, and nest…

This paper presents a meta-learning framework for credit risk assessment of Italian Small and Medium Enterprises (SMEs) that explicitly addresses the temporal misalignment of credit scoring models. The approach aligns financial statement…

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…

In this paper we study empirically the Forward Rate Curve (FRC) of 5 different currencies. We confirm and extend the findings of our previous investigation of the U.S. Forward Rate Curve. In particular, the average FRC follows a square-root…

This paper expands on stochastic volatility models by proposing a data-driven method to select the macroeconomic events most likely to impact volatility. The paper identifies and quantifies the effects of macroeconomic events across…

The interconnectedness of financial institutions affects instability and credit crises. To quantify systemic risk we introduce here the PD model, a dynamic model that combines credit risk techniques with a contagion mechanism on the network…

The aim of this paper is to quantify and manage systemic risk caused by default contagion in the interbank market. We model the market as a random directed network, where the vertices represent financial institutions and the weighted edges…

On Jan. 1, 1999 the European Union introduced a common currency Euro ($EUR$), to become the legal currency in all eleven countries which form the $EUR$. In order to test the $EUR$ behavior and understand various features, the $EUR$ exchange…

Reinforcement learning can interact with the environment and is suitable for applications in decision control systems. Therefore, we used the reinforcement learning method to establish a foreign exchange transaction, avoiding the…

We extend the "probability-equivalent level of VaR and CoVaR" (PELCoV) methodology to accommodate bivariate risks modeled by a Student-t copula, relaxing the strong dependence assumptions of earlier approaches and enhancing the framework's…

The inclusion of DVA in the fair-value of derivative transactions has now become standard accounting practice in most parts of the world. Furthermore, some sophisticated banks are including an FVA (Funding Valuation Adjustment), but since…

We introduce a dynamic and stochastic interbank model with an endogenous notion of distress contagion, arising from rational worries about future defaults and ensuing losses. This entails a mark-to-market valuation adjustment for interbank…