Related papers: Building and Testing Yield Curve Generators for P&…
The hypothesis that committed revolving credit lines with fixed spreads can provide firms with interest rate insurance is a standard feature of models on these credit facilities' interest rate structure. Nevertheless, this hypothesis has…
The instability of historical risk factor correlations renders their use in estimating portfolio risk extremely questionable. In periods of market stress correlations of risk factors have a tendency to quickly go well beyond estimated…
Communication is now a standard tool in the central bank's monetary policy toolkit. Theoretically, communication provides the central bank an opportunity to guide public expectations, and it has been shown empirically that central bank…
We propose a novel framework for modeling the yield curve from a quantile perspective. Building on the dynamic Nelson-Siegel model of Diebold et al. (2006), we extend its traditional mean-based approach to a quantile regression setting,…
In fixed income sector, the yield curve is probably the most observed indicator by the market for trading and fifinancing purposes. A yield curve plots interest rates across different contract maturities from short end to as long as 30…
We develop a general approach for stress testing correlations of financial asset portfolios. The correlation matrix of asset returns is specified in a parametric form, where correlations are represented as a function of risk factors, such…
The paper analyzes the mathematics of the relationship between the default risk and yield-to-maturity of a coupon bond. It is shown that the yield-to-maturity is driven not only by the default probability and recovery rate of the bond but…
Regulatory stress tests have become one of the main tools for setting capital requirements at the largest U.S. banks. The Federal Reserve uses confidential models to evaluate bank-specific outcomes for bank-specific portfolios in shared…
In this paper, we analyze the diversity of term structure functions (e.g., yield curves, swap curves, credit curves) constructed in a process which complies with some admissible properties: arbitrage-freeness, ability to fit market quotes…
Different from existing literature on testing the macro-spanning hypothesis of bond risk premia, which only considers mean regressions, this paper investigates whether the yield curve represented by CP factor (Cochrane and Piazzesi, 2005)…
We develop a modelling framework for multiple yield curves driven by continuous-state branching processes with immigration (CBI processes). Exploiting the self-exciting behavior of CBI jump processes, this approach can reproduce the…
Yield curve modeling is an essential problem in finance. In this work, we explore the use of Bayesian statistical methods in conjunction with Nelson-Siegel model. We present the hierarchical Bayesian model for the parameters of the…
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…
We propose a stochastic model allowing property and casualty insurers with multiple business lines to measure their liabilities for incurred claims risk and calculate associated capital requirements. Our model includes many desirable…
We present a HJM approach to the projection of multiple yield curves developed to capture the volatility content of historical term structures for risk management purposes. Since we observe the empirical data at daily frequency and only for…
The key concepts (calibration, discrimination, and discordance) important in understanding and comparing risk models are best conveyed graphically. To illustrate this, models predicting death and acute kidney injury in a large cohort of PCI…
This paper introduces a novel stochastic model for credit spreads. The stochastic approach leverages the diffusion of default intensities via a CIR++ model and is formulated within a risk-neutral probability space. Our research primarily…
We investigate the joint description of the interest-rate term stuctures of Italy and an AAA-rated European country by mean of a --here proposed-- correlated CIR-like bivariate model where one of the state variables is interpreted as a…
The literature on using yield curves to forecast recessions customarily uses 10-year--three-month Treasury yield spread without verification on the pair selection. This study investigates whether the predictive ability of spread can be…
While machine learning has revolutionized many fields such as natural language processing (NLP) and computer vision, its impact on time-series forecasting is still widely disputed, especially in the finance domain. This paper compares…