Related papers: Model Risk in Credit Risk
Credit Suisse First Boston (CSFB) launched in 1997 the model CreditRisk+ which aims at calculating the loss distribution of a credit portfolio on the basis of a methodology from actuarial mathematics. Knowing the loss distribution, it is…
Adversarial attacks for machine learning models have become a highly studied topic both in academia and industry. These attacks, along with traditional security threats, can compromise confidentiality, integrity, and availability of…
This paper concerns sequential computation of risk measures for financial data and asks how, given a risk measurement procedure, we can tell whether the answers it produces are `correct'. We draw the distinction between `external' and…
Several well-established benchmark predictors exist for Value-at-Risk (VaR), a major instrument for financial risk management. Hybrid methods combining AR-GARCH filtering with skewed-$t$ residuals and the extreme value theory-based approach…
We price European options in a class of models in which the volatility of the underlying risky asset depends on the short rate of interest. Our study results in an explicit pricing formula that depends on knowledge of a characteristic…
Models continue to increase their already broad use across industry as well as their sophistication. Worldwide regulation oblige financial institutions to manage and address model risk with the same severity as any other type of risk, which…
Financial models are studied where each asset may potentially lose value relative to any other. Conditioning on non-devaluation, each asset can serve as proper num\'eraire and classical valuation rules can be formulated. It is shown when…
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…
A method for quantile-based, semi-parametric historical simulation estimation of multiple step ahead Value-at-Risk (VaR) and Expected Shortfall (ES) models is developed. It uses the quantile loss function, analogous to how the…
It is a well known fact that recovery rates tend to go down when the number of defaults goes up in economic downturns. We demonstrate how the loss given default model with the default and recovery dependent via the latent systematic risk…
In this note, we develop stock option price approximations for a model which takes both the risk o default and the stochastic volatility into account. We also let the intensity of defaults be influenced by the volatility. We show that it…
We propose a distributional framework for benchmarking socio-technical risks of foundation models with quantified statistical significance. Our approach hinges on a new statistical relative testing based on first and second order stochastic…
In this paper we develop a tractable structural model with analytical default probabilities depending on some dynamics parameters, and we show how to calibrate the model using a chosen number of Credit Default Swap (CDS) market quotes. We…
We present a multilayer network model for credit risk assessment. Our model accounts for multiple connections between borrowers (such as their geographic location and their economic activity) and allows for explicitly modelling the…
This paper studies how international investors' concerns about model misspecification affect sovereign bond spreads. We develop a general equilibrium model of sovereign debt with endogenous default wherein investors fear that the…
The purpose of this paper is introducing rigorous methods and formulas for bilateral counterparty risk credit valuation adjustments (CVA's) on interest-rate portfolios. In doing so, we summarize the general arbitrage-free valuation…
We consider an approach to credit risk in which the information about the time of bankruptcy is modelled using a Brownian bridge that starts at zero and is conditioned to equal zero when the default occurs. This raises the question whether…
We study a credit risk model which captures effects of economic interactions on a firm's default probability. Economic interactions are represented as a functionally defined graph, and the existence of both cooperative, and competitive,…
Risk measure forecast and model have been developed in order to not only provide better forecast but also preserve its (empirical) property especially coherent property. Whilst the widely used risk measure of Value-at-Risk (VaR) has shown…
Systemic risk is a rapidly developing area of research. Classical financial models often do not adequately reflect the phenomena of bubbles, crises, and transitions between them during credit cycles. To study very improbable events,…