Related papers: Credit risk: Taking fluctuating asset correlations…
In this paper we discuss the problem of the estimation of extreme event occurrence probability for data drawn from some multifractal process. We also study the heavy (power-law) tail behavior of probability density function associated with…
Banks and financial institutions all over the world manage portfolios containing tens of thousands of customers. Not all customers are high credit-worthy, and many possess varying degrees of risk to the Bank or financial institutions that…
We propose a novel probabilistic model to facilitate the learning of multivariate tail dependence of multiple financial assets. Our method allows one to construct from known random vectors, e.g., standard normal, sophisticated joint…
The value of an asset in a financial market is given in terms of another asset known as numeraire. The dynamics of the value is non-stationary and hence, to quantify the relationships between different assets, one requires convenient…
In risk theory, financial asset returns often follow heavy-tailed distributions. Investors and risk managers used to compare risk measures as the value at risk or tail value at risk in order over the whole confidence levels to avoid the…
Financial correlations play a central role in financial theory and also in many practical applications. From theoretical point of view, the key interest is in a proper description of the structure and dynamics of correlations. From…
It is shown that the axioms for coherent risk measures imply that whenever there is an asset in a portfolio that dominates the others in a given sample (which happens with finite probability even for large samples), then this portfolio…
This paper introduces a new methodology for constructing a network of companies called a dynamic asset graph. This is similar to the dynamic asset tree studied recently, as both are based on correlations between asset returns. However, the…
Regulatory requirements dictate that financial institutions must calculate risk capital (funds that must be retained to cover future losses) at least annually. Procedures for doing this have been well-established for many years, but recent…
This work has the objective of estimating default probabilities and correlations of credit portfolios given default rate information through a Bayesian framework using Stan. We use Vasicek's single factor credit model to establish the…
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…
In this paper, we investigate risk measures such as value at risk (VaR) and the conditional tail expectation (CTE) of the extreme (maximum and minimum) and the aggregate (total) of two dependent risks. In finance, insurance and the other…
Can contagion be inferred from aggregated default data? We study this as a problem of identifiability, asking whether contagion generates components in default count distributions that remain distinct from those induced by macroeconomic…
We consider the effect of recovery rates on a pool of credit assets. We allow the recovery rate to depend on the defaults in a general way. Using the theory of large deviations, we study the structure of losses in a pool consisting of a…
Heavy-tailed probability distributions are extremely useful and play a crucial role in modeling different types of financial data sets. This study presents a two-pronged methodology. First, a mixture probability distribution is created by…
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…
Recent financial disasters emphasised the need to investigate the consequence associated with the tail co-movements among institutions; episodes of contagion are frequently observed and increase the probability of large losses affecting…
This paper studies the income fluctuation problem with capital income risk (i.e., dispersion in the rate of return to wealth). Wealth returns and labor earnings are allowed to be serially correlated and mutually dependent. Rewards can be…
Using a family of modified Weibull distributions, encompassing both sub-exponentials and super-exponentials, to parameterize the marginal distributions of asset returns and their natural multivariate generalizations, we give exact formulas…
We propose a set of dependence measures that are non-linear, local, invariant to a wide range of transformations on the marginals, can show tail and risk asymmetries, are always well-defined, are easy to estimate and can be used on any…