Related papers: Linear Credit Risk Models
Dynamic feature selection (DFS) addresses budget constraints in decision-making by sequentially acquiring features for each instance, making it appealing for resource-limited scenarios. However, existing DFS methods require models…
This paper presents an augmented deep factor model that generates latent factors for cross-sectional asset pricing. The conventional security sorting on firm characteristics for constructing long-short factor portfolio weights is nonlinear…
Credit risk scorecards are logistic regression models, fitted to large and complex data sets, employed by the financial industry to model the probability of default of a potential customer. In order to ensure that a scorecard remains a…
We develop a dynamic point process model of correlated default timing in a portfolio of firms, and analyze typical default profiles in the limit as the size of the pool grows. In our model, a firm defaults at a stochastic intensity that is…
A common problem in formulating models for the relative risk and risk difference is the variation dependence between these parameters and the baseline risk, which is a nuisance model. We address this problem by proposing the conditional log…
Systemic financial risk refers to the simultaneous failure or destabilization of multiple financial institutions, often triggered by contagion mechanisms or common exposures to shocks. In this paper, we present a dynamical model of bank…
We analyze the counterparty risk embedded in CDS contracts, in presence of a bilateral margin agreement. First, we investigate the pricing of collateralized counterparty risk and we derive the bilateral Credit Valuation Adjustment (CVA),…
In recent years research on credit risk modelling has mainly focused on default probabilities. Recovery rates are usually modelled independently, quite often they are even assumed constant. Then, however, the structural connection between…
Credit Valuation Adjustment is a balance sheet item which is nowadays subject to active risk management by specialized traders. However, one of the most important risk factors, which is the vector of default intensities of the counterparty,…
In the context of a locally risk-minimizing approach, the problem of hedging defaultable claims and their Follmer-Schweizer decompositions are discussed in a structural model. This is done when the underlying process is a finite variation…
Financial networks raise a significant computational challenge in identifying insolvent firms and evaluating their exposure to systemic risk. This task, known as the clearing problem, is computationally tractable when dealing with simple…
This paper studies a valuation framework for financial contracts subject to reference and counterparty default risks with collateralization requirement. We propose a fixed point approach to analyze the mark-to-market contract value with…
This paper studies the stochastic modeling of market drawdown events and the fair valuation of insurance contracts based on drawdowns. We model the asset drawdown process as the current relative distance from the historical maximum of the…
In this paper we modify the model of Itkin, Shcherbakov and Veygman, (2019) (ISV2019), proposed for pricing Quanto Credit Default Swaps (CDS) and risky bonds, in several ways. First, it is known since the Lehman Brothers bankruptcy that the…
Consumer protection rules require companies that deploy models to automate decisions in high-stakes settings to explain predictions to decision subjects. These rules are motivated, in part, by the belief that explanations can promote…
We model the dynamics of asset prices and associated derivatives by consideration of the dynamics of the conditional probability density process for the value of an asset at some specified time in the future. In the case where the price…
Credit risk stress testing has become an important risk management device which is used both by banks internally and by regulators. Stress testing is complex because it essentially means projecting a bank's full balance sheet conditional on…
This paper extends an option-theoretic approach to estimate liquidity spreads for corporate bonds. Inspired by Longstaff's equity market framework and subsequent work by Koziol and Sauerbier on risk-free zero-coupon bonds, the model views…
The paper tests the validity of the critique of the fiscal theory of the price level. A stochastic general equilibrium model with continuous time is constructed. An active fiscal policy and a passive monetary policy have been set. Monetary…
The forecasting of credit default risk has been an active research field for several decades. Historically, logistic regression has been used as a major tool due to its compliance with regulatory requirements: transparency, explainability,…