Related papers: Credit default prediction and parabolic potential …
We consider a general tractable model for default contagion and systemic risk in a heterogeneous financial network, subject to an exogenous macroeconomic shock. We show that, under some regularity assumptions, the default cascade model…
We find that factors explaining bank loan recovery rates vary depending on the state of the economic cycle. Our modeling approach incorporates a two-state Markov switching mechanism as a proxy for the latent credit cycle, helping to explain…
We construct a Bayesian sequential test of two simple hypotheses about the value of the unobservable drift coefficient of a Brownian motion, with a possibility to change the initial decision at subsequent moments of time for some penalty.…
The DebtRank algorithm has been increasingly investigated as a method to estimate the impact of shocks in financial networks, as it overcomes the limitations of the traditional default-cascade approaches. Here we formulate a dynamical…
A new procedure is presented for the objective comparison and evaluation of default definitions. This allows the lender to find a default threshold at which the financial loss of a loan portfolio is minimised, in accordance with Basel II.…
Bankruptcy is a legal procedure that claims a person or organization as a debtor. It is essential to ascertain the risk of bankruptcy at initial stages to prevent financial losses. In this perspective, different soft computing techniques…
We develop a finite horizon continuous time market model, where risk averse investors maximize utility from terminal wealth by dynamically investing in a risk-free money market account, a stock written on a default-free dividend process,…
This paper introduces a credit risk rating model for credit risk assessment in quantitative finance, aiming to categorize borrowers based on their behavioral data. The model is trained on data from Experian, a widely recognized credit…
We develop a model for the dynamic evolution of default-free and defaultable interest rates in a LIBOR framework. Utilizing the class of affine processes, this model produces positive LIBOR rates and spreads, while the dynamics are…
We present a statistical test that can be used to verify supervisory requirements concerning overlapping time windows for the long-term calibration in rating systems. In a first step, we show that the long-run default rate is approximately…
The modeling of the probability of joint default or total number of defaults among the firms is one of the crucial problems to mitigate the credit risk since the default correlations significantly affect the portfolio loss distribution and…
Loan default prediction is one of the most important and critical problems faced by banks and other financial institutions as it has a huge effect on profit. Although many traditional methods exist for mining information about a loan…
We study the law of the minimum of a Brownian bridge, conditioned to take specific values at specific points, and the law of the location of the minimum. They are used to compare some non-adaptive optimisation algorithms for black-box…
We consider a fractional Brownian motion with unknown linear drift such that the drift coefficient has a prior normal distribution and construct a sequential test for the hypothesis that the drift is positive versus the alternative that it…
In this paper we analyze the resilience of a network of banks to joint price fluctuations of the external assets in which they have shared exposures, and evaluate the worst-case effects of the possible default contagion. Indeed, when the…
We propose a unified framework for equity and credit risk modeling, where the default time is a doubly stochastic random time with intensity driven by an underlying affine factor process. This approach allows for flexible interactions…
With the widespread application of machine learning in financial risk management, conventional wisdom suggests that longer training periods and more feature variables contribute to improved model performance. This paper, focusing on…
This article introduces a new mathematical concept of illiquidity that goes hand in hand with credit risk. The concept is not volume- but constraint-based, i.e., certain assets cannot be shorted and are ineligible as num\'eraire. If those…
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…
A Markovian bridge is a probability measure taken from a disintegration of the law of an initial part of the path of a Markov process given its terminal value. As such, Markovian bridges admit a natural parameterization in terms of the…