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Commodity futures constitute an attractive asset class for portfolio managers. Propelled by their low correlation with other assets, commodities begin gaining popularity among investors, as they allow to capture diversification benefits.…
We propose a unified structural credit risk model incorporating both insolvency and illiquidity risks, in order to investigate how a firm's default probability depends on the liquidity risk associated with its financing structure. We assume…
Sigmoids (AKA s-curves or logistic curves) are commonly used in a diverse spectrum of disciplines as models for time-varying phenomena showing initial acceleration followed by slowing: technology diffusion, cumulative cases of an epidemic,…
Inflation exhibits state-dependent, skewed, and fat-tailed dynamics that make risk a central concern for monetary policy. Accordingly, inflation risks are distributional and cannot be fully captured by mean-based models. We propose a…
In this work we show that prediction uncertainty estimates gleaned from deep learning models can be useful inputs for influencing the relative allocation of risk capital across trades. In this way, consideration of uncertainty is important…
We calibrate and test various variants of field theory models of the interest rate with data from eurodollars futures. A model based on a simple psychological factor are seen to provide the best fit to the market. We make a model…
The lifetime behaviour of loans is notoriously difficult to model, which can compromise a bank's financial reserves against future losses, if modelled poorly. Therefore, we present a data-driven comparative study amongst three techniques in…
Compartmental models like the Susceptible-Infected-Recovered (SIR)\cite{Kermack1927} and its extensions such as the Susceptible-Exposed-Infected-Recovered (SEIRS)\cite{Ottar2020,Ignazio2021,Grimm2021,Paoluzzi2021} are commonly used to model…
We present an early version of a Susceptible-Exposed-Infected-Recovered-Deceased (SEIRD) mathematical model based on partial differential equations coupled with a heterogeneous diffusion model. The model describes the spatio-temporal spread…
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…
The financial crisis of 2007/08 caused catastrophic consequences and brought a bunch of changes around the world. Interest rates that were known to follow or behave similarly of each other diverged. Furthermore, the regulation and in…
We present a new model for credit index derivatives, in the top-down approach. This model has a dynamic loss intensity process with volatility and jumps and can include counterparty risk. It handles CDS, CDO tranches, Nth-to-default and…
Prepayment risk embedded in fixed-rate mortgages forms a significant fraction of a financial institution's exposure, and it receives particular attention because of the magnitude of the underlying market. The embedded prepayment option…
We develop further the spot volatility estimator introduced in Hoffmann, Munk and Schmidt-Hieber (2012) from a practical point of view and make it useful for the analysis of high-frequency financial data. In a first part, we adjust the…
This short paper is intended to demonstrate a crucial omission made by traders in setting the risk-free interest rate, especially in times of crisis: instead of increasing the risk-free rate, traders undercut it en masse on the contrary.…
On-chain lending has expanded across multiple distributed ledgers as DeFi becomes increasingly multi-chain. This environment introduces novel technical and financial mechanisms, particularly cross-blockchain communication and asset transfer…
This paper aims at shedding light upon how transforming or detrending a series can substantially impact predictions of mixed causal-noncausal (MAR) models, namely dynamic processes that depend not only on their lags but also on their leads.…
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…
Spot option prices, forwards and options on forwards relevant for the commodity markets are computed when the underlying process S is modelled as an exponential of a process {\xi} with memory as e.g. a L\'evy semi-stationary process.…
Within the framework of maximum entropy principle we show that the finite-size long-range Ising model is the adequate model for the description of homogeneous credit portfolios and the computation of credit risk when default correlations…