Related papers: An arbitrage-free conic martingale model with appl…
In the pursuit of modelling a loan's probability of default (PD) over its lifetime, repeat default events are often ignored when using Cox Proportional Hazard (PH) models. Excluding such events may produce biased and inaccurate…
We investigate default-free bond markets where the standard relationship between a possibly existing bank account process and the term structure of bond prices is broken, i.e. the bank account process is not a valid num\'eraire. We argue…
Credit Valuation Adjustment (CVA) pricing models need to be both flexible and tractable. The survival probability has to be known in closed form (for calibration purposes), the model should be able to fit any valid Credit Default Swap (CDS)…
We study the Fundamental Theorem of Asset Pricing for a general financial market under Knightian Uncertainty. We adopt a functional analytic approach which require neither specific assumptions on the class of priors $\mathcal{P}$ nor on the…
The goal of this work is to study binary market models with transaction costs, and to characterize their arbitrage opportunities. It has been already shown that the absence of arbitrage is related to the existence of \lambda-consistent…
In this paper we propose a new nonparametric approach to interacting failing systems (FS), that is systems whose probability of failure is not negligible in a fixed time horizon, a typical example being firms and financial bonds. The main…
While absence of arbitrage in frictionless financial markets requires price processes to be semimartingales, non-semimartingales can be used to model prices in an arbitrage-free way, if proportional transaction costs are taken into account.…
We consider structural credit modeling in the important special case where the log-leverage ratio of the firm is a time-changed Brownian motion (TCBM) with the time-change taken to be an independent increasing process. Following the…
We study a continuous-time portfolio optimization problem under an explicit constraint on the Deviation Conditional Value-at-Risk (DCVaR), defined as the difference between the CVaR and the expected terminal wealth. While the mean-CVaR…
The present paper is devoted to the study of a bank salvage model with finite time horizon and subjected to stochastic impulse controls. In our model, the bank's default time is a completely inaccessible random quantity generating its own…
In markets with transaction costs, consistent price systems play the same role as martingale measures in frictionless markets. We prove that if a continuous price process has conditional full support, then it admits consistent price systems…
In this paper, we consider the discounted continuous-time Markov decision process (CTMDP) with a lower bounding function. In this model, the negative part of each cost rate is bounded by the drift function, say $w$, whereas the positive…
We derive deterministic criteria for the existence and non-existence of equivalent (local) martingale measures for financial markets driven by multi-dimensional time-inhomogeneous diffusions. Our conditions can be used to construct…
We introduce a dynamic model of the default waterfall of derivatives CCPs and propose a risk sensitive method for sizing the initial margin (IM), and the default fund (DF) and its allocation among clearing members. Using a Markovian…
We give a comprehensive review of credit term structure modeling methodologies. The conventional approach to modeling credit term structure is summarized and shown to be equivalent to a particular type of the reduced form credit risk model,…
The classical discrete time model of proportional transaction costs relies on the assumption that a feasible portfolio process has solvent increments at each step. We extend this setting in two directions, allowing for convex transaction…
The multivariate normal linear model is one of the most widely employed models for statistical inference in applied research. Special cases include (multivariate) t testing, (M)AN(C)OVA, (multivariate) multiple regression, and repeated…
We show that the lack of arbitrage in a model with both fixed and proportional transaction costs is equivalent to the existence of a family of absolutely continuous single-step probability measures, together with an adapted process with…
We propose a novel credit default model that takes into account the impact of macroeconomic information and contagion effect on the defaults of obligors. We use a set-valued Markov chain to model the default process, which is the set of all…
Model selection in supervised learning provides costless guarantees as if the model that best balances bias and variance was known a priori. We study the feasibility of similar guarantees for cumulative regret minimization in the stochastic…