Related papers: Credit risk: Taking fluctuating asset correlations…

The downside risk of a portfolio of (equity)assets is generally substantially higher than the downside risk of its components. In particular in times of crises when assets tend to have high correlation, the understanding of this difference…

Reliable calculations of financial risk require that the fat-tailed nature of prices changes is included in risk measures. To this end, a non-Gaussian approach to financial risk management is presented, modeling the power-law tails of the…

In risk management it is desirable to grasp the essential statistical features of a time series representing a risk factor. This tutorial aims to introduce a number of different stochastic processes that can help in grasping the essential…

We explore credit risk pricing by modeling equity as a call option and debt as the difference between the firm's asset value and a put option, following the structural framework of the Merton model. Our approach proceeds in two stages:…

Using Monte Carlo simulation to calculate the Value at Risk (VaR) as a possible risk measure requires adequate techniques. One of these techniques is the application of a compound distribution for the aggregates in a portfolio. In this…

This paper considers the problem of measuring the credit risk in portfolios of loans, bonds, and other instruments subject to possible default under multi-factor models. Due to the amount of the portfolio, the heterogeneous effect of…

The aim of this paper is to describe a new an integrated methodology for project control under uncertainty. This proposal is based on Earned Value Methodology and risk analysis and presents several refinements to previous methodologies.…

The ongoing concern about systemic risk since the outburst of the global financial crisis has highlighted the need for risk measures at the level of sets of interconnected financial components, such as portfolios, institutions or members of…

The probability distribution for the relative return of a portfolio constructed from a subset n of the assets from a benchmark, consisting of N assets whose returns are multivariate normal, is completely characterized by its tracking error.…

Accurately assessing financial risk requires capturing both individual asset volatility and the complex, asymmetric dependence structures that emerge during extreme market events. While modern diffusion-based models have advanced…

Our goal in this paper is to propose an alternative risk measure which takes into account the fluctuations of losses and possible correlations between random variables. This new notion of risk measures, that we call Copula Conditional Tail…

We present a computational method for measuring financial risk by estimating the Value at Risk and Expected Shortfall from financial series. We have made two assumptions: First, that the predictive distributions of the values of an asset…

In the Vasicek credit portfolio model, tail risk is driven primarily by the asset-correlation parameter, yet empirically is subject to correlation risk. We propose a stochastic correlation extension of the Vasicek framework in which the…

We extend and test empirically the multifractal model of asset returns based on a multiplicative cascade of volatilities from large to small time scales. The multifractal description of asset fluctuations is generalized into a multivariate…

Estimating and controlling large risks has become one of the main concern of financial institutions. This requires the development of adequate statistical models and theoretical tools (which go beyond the traditionnal theories based on…

There are various metrics for financial risk, such as value at risk (VaR), expected shortfall, expected/unexpected loss, etc. When estimating these metrics, it was very common to assume Gaussian distribution for the asset returns, which may…

We introduce a novel machine learning model for credit risk by combining tree-boosting with a latent spatio-temporal Gaussian process model accounting for frailty correlation. This allows for modeling non-linearities and interactions among…

This article deals with the problem of optimal allocation of capital to corporate bonds in fixed income portfolios when there is the possibility of correlated defaults. Under fairly general assumptions for the distribution of the total net…

In this paper, we deal with an axiomatic approach to default risk. We introduce the notion of a default risk measure, which generalizes the classical probability of default (PD), and allows to incorporate model risk in various forms. We…

Estimation of the covariance matrix of asset returns is crucial to portfolio construction. As suggested by economic theories, the correlation structure among assets differs between emerging markets and developed countries. It is therefore…