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Identifying meaningful relationships between the price movements of financial assets is a challenging but important problem in a variety of financial applications. However with recent research, particularly those using machine learning and…
The two main approaches in credit risk are the structural approach pioneered in Merton (1974) and the reduced-form framework proposed in Jarrow & Turnbull (1995) and in Artzner & Delbaen (1995). The goal of this article is to provide a…
In corporate bond markets, which are mainly OTC markets, market makers play a central role by providing bid and ask prices for a large number of bonds to asset managers from all around the globe. Determining the optimal bid and ask quotes…
The instability of the financial system as experienced in recent years and in previous periods is often linked to credit defaults, i.e., to the failure of obligors to make promised payments. Given the large number of credit contracts, this…
The linear Fisher market (LFM) is a basic equilibrium model from economics, which also has applications in fair and efficient resource allocation. First-price pacing equilibrium (FPPE) is a model capturing budget-management mechanisms in…
According to theoretical models of valuing risky corporate securities, risk of default is primary component in overall yield spread. However, sizable empirical literature considers it otherwise by giving more importance to non-default risk…
This article presents valuation of Treasury Bonds (T-Bonds) on Macedonian Stock Exchange (MSE) and empirical test of duration, modified duration and convexity of the T-bonds at MSE in order to determine sensitivity of bonds prices on…
We develop a model where currency issuers provide liquidity, while users in a trade network choose currency usage for trade settlement. We identify a feedback mechanism where a user's currency preference spillovers to others and increases…
We introduce a class of short-rate models that exhibit a ``higher for longer'' phenomenon. Specifically, the short-rate is modeled as a general time-homogeneous one-factor Markov diffusion on a finite interval. The lower endpoint is assumed…
This paper presents an evaluation framework that attempts to quantify the "degree of realism" of simulated financial time series, whatever the simulation method could be, with the aim of discover unknown characteristics that are not being…
Many modern computational approaches to classical problems in quantitative finance are formulated as empirical loss minimization (ERM), allowing direct applications of classical results from statistical machine learning. These methods,…
This paper studies the equal risk pricing (ERP) framework for the valuation of European financial derivatives. This option pricing approach is consistent with global trading strategies by setting the premium as the value such that the…
This paper challenges the use of stocks in portfolio construction, instead we demonstrate that Asian derivatives, straddles, or baskets could be more convenient substitutes. Our results are obtained under the assumptions of the…
We study financial systems from a game-theoretic standpoint. A financial system is represented by a network, where nodes correspond to firms, and directed labeled edges correspond to debt contracts between them. The existence of cycles in…
The classical multivariate extreme value theory tries to capture the extremal dependence between the components under a multivariate domain of attraction condition and it requires each of the components to be in the domain of attraction of…
This paper analyzes the hypothesis that returns play a risk-compensating role in the market for corporate revolving lines of credit. Specifically, we test whether borrower risk and the expected return on these debt instruments are…
Collateralization with daily margining has become a new standard in the post-crisis market. Although there appeared vast literature on a so-called multi-curve framework, a complete picture of a multi-currency setup with cross-currency basis…
Financial contracts with options that allow the holder to extend the contract maturity by paying an additional fixed amount found many applications in finance. Closed-form solutions for the price of these options have appeared in the…
The issue of model risk in default modeling has been known since inception of the Academic literature in the field. However, a rigorous treatment requires a description of all the possible models, and a measure of the distance between a…
We study the role of contingent convertible bonds (CoCos) in a complex network of interconnected banks. By studying the system's phase transitions, we reveal that the structure of the interbank network is of fundamental importance for the…