Related papers: A structural approach to default modelling with pu…
We develop a generalization of the Black-Cox structural model of default risk. The extended model captures uncertainty related to firm's ability to avoid default even if company's liabilities momentarily exceeding its assets. Diffusion in a…
We consider the optimal investment problem when the traded asset may default, causing a jump in its price. For an investor with constant absolute risk aversion, we compute indifference prices for defaultable bonds, as well as a price for…
We develop a liquidity-sensitive multivariate volatility framework to improve the estimation of time-varying covariance structures under market frictions. We introduce two novel portfolio-level liquidity measures, liquidity jump and…
We propose a general framework for studying jump-diffusion systems driven by both Gaussian noise and a jump process with state-dependent intensity. Of particular natural interest are the jump locations: the system evaluated at the jump…
This article deals with the problem of optimal allocation of capital to corporate bonds in fixed income portfolios when there is the possibility of correlated defaults. Using a multivariate normal Copula function for the joint default…
We extend the now classic structural credit modeling approach of Black and Cox to a class of "two-factor" models that unify equity securities such as options written on the stock price, and credit products like bonds and credit default…
We propose a model for the credit markets in which the random default times of bonds are assumed to be given as functions of one or more independent "market factors". Market participants are assumed to have partial information about each of…
Score-based modeling through stochastic differential equations (SDEs) has provided a new perspective on diffusion models, and demonstrated superior performance on continuous data. However, the gradient of the log-likelihood function, i.e.,…
In this paper we develop a tractable structural model with analytical default probabilities depending on some dynamics parameters, and we show how to calibrate the model using a chosen number of Credit Default Swap (CDS) market quotes. We…
We study the rate of weak convergence of Markov chains to diffusion processes under suitable but quite general assumptions. We give an example in the financial framework, applying the convergence analysis to a multiple jumps tree…
We consider stochastic control systems affected by a fast mean reverting volatility $Y(t)$ driven by a pure jump L\'evy process. Motivated by a large literature on financial models, we assume that $Y(t)$ evolves at a faster time scale…
This paper presents a new method to assess default risk based on applying the CEV process to the KMV model. We find that the volatility of the firm asset value may not be a constant, so we assume the firm's asset value dynamics are given by…
The impact of a stress scenario of default events on the loss distribution of a credit portfolio can be assessed by determining the loss distribution conditional on these events. While it is conceptually easy to estimate loss distributions…
In a high-frequency context, we investigate the efficient estimation of scaling and jump activity parameters for a stochastic differential equation driven by a L{\'e}vy process with both diffusion component and pure-jump component. We first…
This article deals with the problem of optimal allocation of capital to corporate bonds in fixed income portfolios when there is the possibility of correlated defaults. Under fairly general assumptions for the distribution of the total net…
Foundation models - already transformative in domains such as natural language processing - are now starting to emerge for time-series tasks in finance. While these pretrained architectures promise versatile predictive signals, little is…
Anomalous diffusions arise as scaling limits of continuous-time random walks (CTRWs) whose innovation times are distributed according to a power law. The impact of a non-exponential waiting time does not vanish with time and leads to…
We detect the parameter sensitivities of bond pricing which is driven by a Brownian motion and a compound Poisson process as the discontinuous case in credit risk research. The strict mathematical deductions are given theoretically due to…
This paper considers mutual obligations in the interconnected bank system and analyzes their influence on joint and marginal survival probabilities as well as CDS and FTD prices for the individual banks. To make the role of mutual…
We study an optimal investment problem under contagion risk in a financial model subject to multiple jumps and defaults. The global market information is formulated as a progressive enlargement of a default-free Brownian filtration, and the…