Related papers: Default Distances Based on the CEV-KMV Model
We introduce an innovative theoretical framework to model derivative transactions between defaultable entities based on the principle of arbitrage freedom. Our framework extends the traditional formulations based on Credit and Debit…
Wrong-Way Risk (WWR) is an important component in Funding Valuation Adjustment (FVA) modelling. Yet, the standard assumption is independence between market risks and the counterparty defaults and funding costs. This typical industrial…
We consider the sequential decision problem faced by the manager of an electric vehicle (EV) charging station, who aims to satisfy the charging demand of the customer while minimizing cost. Since the total time needed to charge the EV up to…
The investor is interested in the expected return and he is also concerned about the risk and the uncertainty assumed by the investment. One of the most popular concepts used to measure the risk and the uncertainty is the variance and/or…
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…
Designing dynamic portfolio insurance strategies under market conditions switching between two or more regimes is a challenging task in financial economics. Recently, a promising approach employing the value-at-risk (VaR) measure to assign…
This paper discusses the valuation of credit default swaps, where default is announced when the reference asset price has gone below certain level from the last record maximum, also known as the high-water mark or drawdown. We assume that…
Operational risk capital estimation under Basel II/III requires quantifying aggregate losses at extreme confidence levels of 99.9% and beyond, yet the standard Loss Distribution Approach (LDA) assumes independence between loss frequency and…
We propose a structural default model for portfolio-wide valuation adjustments (xVAs) and represent it as a system of coupled backward stochastic differential equations. The framework is divided into four layers, each capturing a key…
In this paper we consider an ergodic diffusion process with jumps whose drift coefficient depends on $\mu$ and volatility coefficient depends on $\sigma$, two unknown parameters. We suppose that the process is discretely observed at the…
This article presents FVA and CVA of a bilateral derivative in a coherent manner, based on recent developments in fair value accounting and ISDA standards. We argue that a derivative liability, after primary risk factors being hedged,…
We study the pricing of credit derivatives with asymmetric information. The managers have complete information on the value process of the firm and on the default threshold, while the investors on the market have only partial observations,…
We study continuous-time portfolio selection under monotone mean-variance (MMV) preferences in a jump-diffusion model, presenting an explicit solution different from that under classical mean-variance (MV) preferences in dynamic settings…
We analyse a Monte Carlo particle method for the simulation of the calibrated Heston-type local stochastic volatility (H-LSV) model. The common application of a kernel estimator for a conditional expectation in the calibration condition…
The performance of learning models often deteriorates when deployed in out-of-sample environments. To ensure reliable deployment, we propose a stability evaluation criterion based on distributional perturbations. Conceptually, our stability…
This paper investigates calculations of robust funding valuation adjustment (FVA) for over the counter (OTC) derivatives under distributional uncertainty using Wasserstein distance as the ambiguity measure. Wrong way funding risk can be…
We consider discrete default intensity based and logit type reduced form models for conditional default probabilities for corporate loans where we develop simple closed form approximations to the maximum likelihood estimator (MLE) when the…
Complex systems are sometimes subject to non Gaussian alpha stable Levy fluctuations. A new method is devised to estimate this uncertain parameter and other system parameters, using observations on either mean exit time or escape…
In the aftermath of the global financial crisis, much attention has been paid to investigating the appropriateness of the current practice of default risk modeling in banking, finance and insurance industries. A recent empirical study by…
Robust estimators for linear regression require non-convex objective functions to shield against adverse affects of outliers. This non-convexity brings challenges, particularly when combined with penalization in high-dimensional settings.…