Related papers: Parameter estimation of default portfolios using t…
In this paper we present a novel approach for firm default probability estimation. The methodology is based on multivariate contingent claim analysis and pair copula constructions. For each considered firm, balance sheet data are used to…
Model change detection is studied, in which there are two sets of samples that are independently and identically distributed (i.i.d.) according to a pre-change probabilistic model with parameter $\theta$, and a post-change model with…
The Merton investment-consumption problem is fundamental, both in the field of finance, and in stochastic control. An important extension of the problem adds transaction costs, which is highly relevant from a financial perspective but also…
We consider financial networks, where banks are connected by contracts such as debts or credit default swaps. We study the clearing problem in these systems: we want to know which banks end up in a default, and what portion of their…
We consider the problem of modelling the term structure of defaultable bonds, under minimal assumptions on the default time. In particular, we do not assume the existence of a default intensity and we therefore allow for the possibility of…
A model is developed to assess the profitability of loans or mortgages with a specified repayment schedule. Financial institutions face two competing risks: default and prepayment, both influenced by the stochastic evolution of credit…
This paper is a comprehensive study of a long observed phenomenon of increase in the stability margin and so the rate of convergence of a class of linear systems due to time delay. We use Lambert W function to determine (a) in what systems…
In this paper we develop structural first passage models (AT1P and SBTV) with time-varying volatility and characterized by high tractability, moving from the original work of Brigo and Tarenghi (2004, 2005) [19] [20] and Brigo and Morini…
Changes in collateralization have been implicated in significant default (or near-default) events during the financial crisis, most notably with AIG. We have developed a framework for quantifying this effect based on moving between…
We build a general model for pricing defaultable claims. In addition to the usual absence of arbitrage assumption, we assume that one defaultable asset (at least) looses value when the default occurs. We prove that under this assumption, in…
This paper elaborates on the validation requirements for rating systems and probabilities of default (PDs) which were introduced with the New Capital Standards (Basel II). We start in Section 2 with some introductory remarks on the topics…
We study the continuous absorbing-state phase transition in the one-dimensional pair contact process with diffusion (PCPD). In previous studies [Dickman and de Menezes, Phys. Rev. E, 66 045101(R) (2002)], the critical point moment ratios of…
The aim of this paper is to quantify and manage systemic risk caused by default contagion in the interbank market. We model the market as a random directed network, where the vertices represent financial institutions and the weighted edges…
We present a simple model of firm rating evolution. We consider two sources of defaults: individual dynamics of economic development and Potts-like interactions between firms. We show that such a defined model leads to phase transition,…
We consider a binary sequence generated by thresholding a hidden continuous sequence. The hidden variables are assumed to have a compound symmetry covariance structure with a single parameter characterizing the common correlation. We study…
Parameter estimation in linear errors-in-variables models typically requires that the measurement error distribution be known (or estimable from replicate data). A generalized method of moments approach can be used to estimate model…
We propose a unified framework for equity and credit risk modeling, where the default time is a doubly stochastic random time with intensity driven by an underlying affine factor process. This approach allows for flexible interactions…
We consider the estimation of approximate factor models for time series data, where strong serial and cross-sectional correlations amongst the idiosyncratic component are present. This setting comes up naturally in many applications, but…
This paper studies the behavior of singularly perturbed nonlinear differential equations with boundary-layer solutions that do not necessarily converge to an equilibrium. Using the average of the fast variable and assuming the boundary…
This econophysics work studies the long-range Ising model of a finite system with $N$ spins and the exchange interaction $\frac{J}{N}$ and the external field $H$ as a modely for homogeneous credit portfolio of assets with default…