Related papers: A Simple Factoring Pricing Model

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…

When learning is used to inform decisions about humans, such as for loans, hiring, or admissions, this can incentivize users to strategically modify their features, at a cost, to obtain positive predictions. The common assumption is that…

Many important economic outcomes result from the combined effects of several choices, so the best option is not determined from each choice in isolation, but depends on how each choice alters total outcomes. We formally show that narrow…

In this paper incomplete-information models are developed for the pricing of securities in a stochastic interest rate setting. In particular we consider credit-risky assets that may include random recovery upon default. The market…

The asset pricing literature emphasizes factor models that minimize pricing errors but overlooks unselected candidate factors that could enhance the performance of test assets. This paper proposes a framework for factor model selection and…

Credit scores are critical for allocating consumer debt in the United States, yet little evidence is available on their performance. We benchmark a widely used credit score against a machine learning model of consumer default and find…

As a firm varies the price of a product, consumers exhibit reference effects, making purchase decisions based not only on the prevailing price but also the product's price history. We consider the problem of learning such behavioral…

This paper studies the principal component (PC) method-based estimation of weak factor models with sparse loadings. We uncover an intrinsic near-sparsity preservation property for the PC estimators of loadings, which comes from 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…

In (exploratory) factor analysis, the loading matrix is identified only up to orthogonal rotation. For identifiability, one thus often takes the loading matrix to be lower triangular with positive diagonal entries. In Bayesian inference, a…

In this paper we extend the reduced-form setting under model uncertainty introduced in [5] to include intensities following an affine process under parameter uncertainty, as defined in [15]. This framework allows to introduce a longevity…

In this paper we propose a method to obtain global explanations for trained black-box classifiers by sampling their decision function to learn alternative interpretable models. The envisaged approach provides a unified solution to…

Interbank contagion can theoretically exacerbate losses in a financial system and lead to additional cascade defaults during downturn. In this paper we produce default analysis using both regression and neural network models to verify…

We consider a general local-stochastic volatility model and an investor with exponential utility. For a European-style contingent claim, whose payoff may depend on either a traded or non-traded asset, we derive an explicit approximation for…

We study the problem of auditing the fairness of a given classifier under partial feedback, where true labels are available only for positively classified individuals, (e.g., loan repayment outcomes are observed only for approved…

Many early order flow auction designs handle the payment for orders when they execute on the chain rather than when they are won in the auction. Payments in these auctions only take place when the orders are executed, creating a free option…

In this short note we show how virtual arbitrage opportunities can be modelled and included in the standard derivative pricing without changing the general framework.

We introduce a novel class of credit risk models in which the drift of the survival process of a firm is a linear function of the factors. The prices of defaultable bonds and credit default swaps (CDS) are linear-rational in the factors.…

We study factor models that combine latent factors with firm characteristics and propose a new framework for modeling, estimating, and inferring pricing errors. Following Zhang (2024), our approach decomposes mispricing into two distinct…

We derive valuations of a portfolio of financial instruments from a securities lending perspective, under different assumptions, and show a weighting scheme that converges to the true valuation. We illustrate conditions under which our…