Related papers: Building and Testing Yield Curve Generators for P&…
The notion of a credit spread curve is fundamental in fixed income investing, but in practice it is not `given' and needs to be constructed from bond prices either for a particular issuer, or for a sector rating-by-rating. Rather than…
In traditional financial markets, yield curves are widely available for countries (and, by extension, currencies), financial institutions, and large corporates. These curves are used to calibrate stochastic interest rate models, discount…
We study U.S. Treasury yield curve forecasting under distributional uncertainty and recast forecasting as an operations research and managerial decision problem. Rather than minimizing average forecast error, the forecaster selects a…
Credit risk stress testing has become an important risk management device which is used both by banks internally and by regulators. Stress testing is complex because it essentially means projecting a bank's full balance sheet conditional on…
This paper describes a general approach for stochastic modeling of assets returns and liability cash-flows of a typical pensions insurer. On the asset side, we model the investment returns on equities and various classes of fixed-income…
This manuscript introduces deep learning models that simultaneously describe the dynamics of several yield curves. We aim to learn the dependence structure among the different yield curves induced by the globalization of financial markets…
US Yield curve has recently collapsed to its most flattened level since subprime crisis and is close to the inversion. This fact has gathered attention of investors around the world and revived the discussion of proper modeling and…
The crisis that affected financial markets in the last years leaded market practitioners to revise well known basic concepts like the ones of discount factors and forward rates. A single yield curve is not sufficient any longer to describe…
Robust yield curve estimation is crucial in fixed-income markets for accurate instrument pricing, effective risk management, and informed trading strategies. Traditional approaches, including the bootstrapping method and parametric…
This paper offers a new class of models of the term structure of interest rates. We allow each instantaneous forward rate to be driven by a different stochastic shock, constrained in such a way as to keep the forward rate curve continuous.…
We give a detailed account of correlations between credit sector/quality and treasury curve factors, using the robust framework of the Barclays POINT Global Risk Model. Consistent with earlier studies, we find a strong negative correlation…
The predictiveness curve is a valuable tool for predictive evaluation, risk stratification, and threshold selection in a target population, given a single biomarker or a prediction model. In the presence of competing risks, regression…
Yield curve forecasting is an important problem in finance. In this work we explore the use of Gaussian Processes in conjunction with a dynamic modeling strategy, much like the Kalman Filter, to model the yield curve. Gaussian Processes…
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…
We set up a structural model to study credit risk for a portfolio containing several or many credit contracts. The model is based on a jump--diffusion process for the risk factors, i.e. for the company assets. We also include correlations…
Since the Great Financial Crisis (GFC), the use of stress tests as a tool for assessing the resilience of financial institutions to adverse financial and economic developments has increased significantly. One key part in such exercises is…
Covered bonds are a specific example of senior secured debt. If the issuer of the bonds defaults the proceeds of the assets in the cover pool are used for their debt service. If in this situation the cover pool proceeds do not suffice for…
Risk-averse investors often wish to exclude stocks from their portfolios that bear high credit risk, which is a measure of a firm's likelihood of bankruptcy. This risk is commonly estimated by constructing signals from quarterly accounting…
Explicitly taking into account the risk incurred when borrowing at a shorter tenor versus lending at a longer tenor ("roll-over risk"), we construct a stochastic model framework for the term structure of interest rates in which a frequency…
The term structure of interest rates (yield curve) is a critical facet of financial analytics, impacting various investment and risk management decisions. It is used by the central bank to conduct and monitor its monetary policy. That…