Related papers: General dynamic term structures under default risk
We discuss the pricing of defaultable assets in an incomplete information model where the default time is given by a first hitting time of an unobservable process. We show that in a fairly general Markov setting, the indicator function of…
For credit risk management purposes in general, and for allocation of regulatory capital by banks in particular (Basel II), numerical assessments of the credit-worthiness of borrowers are indispensable. These assessments are expressed in…
In this work, we consider extensions of the dual risk model with proportional gains by introducing a dependence structure between gain sizes and gain interrarrival times. Among others, we further consider the case where the proportional…
It has been understood that the "local" existence of the Markowitz' optimal portfolio or the solution to the local-risk minimization problem is guaranteed by some specific mathematical structures on the underlying assets price processes…
In this work, we derive a complete characterization of all ruin-inducing probability measures that preserve the structure of a given compound renewal process in terms of suitable pairs of functions $(\gamma,\delta)$. This result allows us…
In recent years, the counterparty credit risk measure, namely the default risk in \emph{Over The Counter} (OTC) derivatives contracts, has received great attention by banking regulators, specifically within the frameworks of \emph{Basel II}…
This paper advances interest rate modeling in the post-LIBOR era by introducing rough stochastic volatility into the Forward Market Model (FMM). We establish a rigorous asymptotic expansion of swaption implied volatility, connecting the FMM…
The market practice of extrapolating different term structures from different instruments lacks a rigorous justification in terms of cash flows structure and market observables. In this paper, we integrate our previous consistent theory for…
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 paper characterizes the probability of a market failure defined as the default of two or more globally systemically important banks (G-SIBs) in a small interval of time. The default probabilities of the G-SIBs are correlated through…
The standard intensity-based approach for modeling defaults is generalized by making the deterministic term structure of the survival probability stochastic via a common jump process. The survival copula of the vector of default times is…
We consider the Heath-Jarrow-Morton model of forward rates processes with linear volatility. The noise is either a Wiener or a pure jump Leevy process. We provide formulae for the forward rate processes, and discus the problem of their…
How to forecast next year's portfolio-wide credit default rate based on last year's default observations and the current score distribution? A classical approach to this problem consists of fitting a mixture of the conditional score…
This paper proposes a simple technical approach for the analytical derivation of Point-in-Time PD (probability of default) forecasts, with minimal data requirements. The inputs required are the current and future Through-the-Cycle PDs of…
In the second part of our series we suggest new definitions of credit bond duration and convexity that remain consistent across all levels of credit quality including deeply distressed bonds and introduce additional risk measures that are…
The multiple extension problem arises frequently in diagnostic and default inference. That is, we can often use any of a number of sets of defaults or possible hypotheses to explain observations or make Predictions. In default inference,…
There is currently a focus on statistical methods which can use historical trial information to help accelerate the discovery, development and delivery of medicine. Bayesian methods can be constructed so that the borrowing is "dynamic" in…
To quantify the changes in the credit rating of a bond is an important mathematical problem for the credit rating industry. To think of the credit rating as the state a Markov chain is an interesting proposal leading to challenges in…
This paper expands traditional stochastic volatility models by allowing for time-varying skewness without imposing it. While dynamic asymmetry may capture the likely direction of future asset returns, it comes at the risk of leading to…
A fixed-design residual bootstrap method is proposed for the two-step estimator of Francq and Zako\"ian (2015) associated with the conditional Value-at-Risk. The bootstrap's consistency is proven for a general class of volatility models and…