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This paper introduces a credit risk rating model for credit risk assessment in quantitative finance, aiming to categorize borrowers based on their behavioral data. The model is trained on data from Experian, a widely recognized credit…
We test the hypothesis that interconnections across financial institutions can be explained by a diversification motive. This idea stems from the empirical evidence of the existence of long-term exposures that cannot be explained by a…
This paper characterises dynamic linkages arising from shocks with heterogeneous degrees of persistence. Using frequency domain techniques, we introduce measures that identify smoothly varying links of a transitory and persistent nature.…
In this paper, we investigate the effectiveness of conventional and unconventional monetary policy measures by the European Central Bank (ECB) conditional on the prevailing level of uncertainty. To obtain exogenous variation in central bank…
We study the mean field approximation of a recent model of cascades on networks relevant to the investigation of systemic risk control in financial networks. In the model, the hypothesis of a trend reinforcement in the stochastic process…
This paper proposes a time-zone vector autoregression (VAR) model to investigate comovements in the global financial market. Analyzing daily data from 36 national equity markets, we explore the subprime and European debt crises using static…
Management of systemic risk in financial markets is traditionally associated with setting (higher) capital requirements for market participants. There are indications that while equity ratios have been increased massively since the…
A minimal stochastic dynamical model of the interbank network is introduced, with linear interactions mediated by an integral of recent variations. Defining stress as the variance over the banks' states, the interaction correction to the…
A stream of unstructured news can be a valuable source of hidden relations between different entities, such as financial institutions, countries, or persons. We present an approach to continuously collect online news, recognize relevant…
Due to the variety of corporate risks in turmoil markets and the consequent financial distress especially in COVID-19 time, this paper investigates corporate resilience and compares different types of resilience that can be potential…
In the last years, increasing efforts have been put into the development of effective stress tests to quantify the resilience of financial institutions. Here we propose a stress test methodology for central counterparties based on a network…
We consider a network of bank holdings, where every holding has two subsidiaries of different types. A subsidiary can trade with another holding's subsidiary of the same type. Holdings support their subsidiaries up to a certain level when…
We present a novel approach for the bank's decision problem, incorporating Limited Liability in the objective function. Accordingly, we consider continuous time models, with and without Limited Liability. We compare the solutions of these…
The level of systemic risk in economic and financial systems is strongly determined by the structure of the underlying networks of interdependent entities that can propagate shocks and stresses. Since changes in network structure imply…
This mini-project models propagation of shocks, in time point, through links in connected banks. In particular, financial network of 100 banks out of which 15 are shocked to default (that is, 85.00% of the banks are solvent) is modelled…
The present work studies and analyzes general defaultable OTC contract in presence of a contingent CSA, which is a theoretical counterparty risk mitigation mechanism of switching type that allows the counterparty of a general OTC contract…
This paper introduces a novel multidimensional insurance-linked instrument: a contingent convertible bond (CoCoCat bond) whose conversion trigger is activated by predefined natural catastrophes across multiple geographical regions. We…
Decentralized finance introduces new business models and use cases as part of digital finance. Restaking has recently emerged as a transformative mechanism in DeFi, promising extra yields but introducing complex and interconnected risks.…
This paper explores the capabilities of the Constant Elasticity of Variance model driven by a mixed-fractional Brownian motion (mfCEV) [Axel A. Araneda. The fractional and mixed-fractional CEV model. Journal of Computational and Applied…
We consider a model of debt management, where a sovereign state trade some bonds to service the debt with a pool of risk-neutral competitive foreign investors. At each time, the government decides which fraction of the gross domestic…