Related papers: Credit default prediction and parabolic potential …
We model the term structure of the forward default intensity and the default density by using L\'evy random fields, which allow us to consider the credit derivatives with an after-default recovery payment. As applications, we study the…
We develop a structural default model for interconnected financial institutions in a probabilistic framework. For all possible network structures we characterize the joint default distribution of the system using Bayesian network…
Risk-neutral default probabilities can be implied from credit default swap (CDS) market quotes. In practice, mid CDS quotes are used as inputs, as their risk-neutral counterparts are not observable. We show how to imply risk-neutral default…
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…
In credit risk literature, the existence of an equivalent martingale measure is stipulated as one of the main assumptions in the hazard process model. Here we show by construction the existence of a measure that turns the discounted stock…
Microfinance, despite its significant potential for poverty reduction, is facing sustainability hardships due to high default rates. Although many methods in regular finance can estimate credit scores and default probabilities, these…
We consider a structural default model in an interconnected banking network as in Lipton [International Journal of Theoretical and Applied Finance, 19(6), 2016], with mutual obligations between each pair of banks. We analyse the model…
The problem of stopping a Brownian bridge with an unknown pinning point to maximise the expected value at the stopping time is studied. A few general properties, such as continuity and various bounds of the value function, are established.…
In the aftermath of the global financial crisis, much attention has been paid to investigating the appropriateness of the current practice of default risk modeling in banking, finance and insurance industries. A recent empirical study by…
This paper considers general term structure models like the ones appearing in portfolio credit risk modelling or life insurance. We give a general model starting from families of forward rates driven by infinitely many Brownian motions and…
We propose a unified structural credit risk model incorporating both insolvency and illiquidity risks, in order to investigate how a firm's default probability depends on the liquidity risk associated with its financing structure. We assume…
The risk of a credit portfolio depends crucially on correlations between the probability of default (PD) in different economic sectors. Often, PD correlations have to be estimated from relatively short time series of default rates, and the…
Modelling of multiple simultaneous failures in insurance, finance and other areas of applied probability is important especially from the point of view of pandemic-type events. A benchmark limiting model for the analysis of multiple…
A model is developed to assess the profitability of loans or mortgages with a specified repayment schedule. Financial institutions face two competing risks: default and prepayment, both influenced by the stochastic evolution of credit…
Moderate calibration, the expected event probability among observations with predicted probability z being equal to z, is a desired property of risk prediction models. Current graphical and numerical techniques for evaluating moderate…
In this work we develop a tractable structural model with analytical default probabilities depending on a random default barrier and possibly random volatility ideally associated with a scenario based underlying firm debt. We show how to…
While defaults are rare events, losses can be substantial even for credit portfolios with a large number of contracts. Therefore, not only a good evaluation of the probability of default is crucial, but also the severity of losses needs to…
The present paper provides a multi-period contagion model in the credit risk field. Our model is an extension of Davis and Lo's infectious default model. We consider an economy of n firms which may default directly or may be infected by…
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…
This article focuses on the mathematical problem of existence and uniqueness of BSDE with a random terminal time which is a general random variable but not a stopping time, as it has been usually the case in the previous literature of BSDE…