Related papers: Default Process Modeling and Credit Valuation Adju…
We discuss the pricing of defaultable assets in an incomplete information model where the default time is given by a first hitting time of an unobservable process. We show that in a fairly general Markov setting, the indicator function of…
We obtain an explicit formula for the bilateral counterparty valuation adjustment of a credit default swaps portfolio referencing an asymptotically large number of entities. We perform the analysis under a doubly stochastic intensity…
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…
Credit Valuation Adjustment is a balance sheet item which is nowadays subject to active risk management by specialized traders. However, one of the most important risk factors, which is the vector of default intensities of the counterparty,…
The current research on credit risk is primarily focused on modeling default probabilities. Recovery rates are often treated as an afterthought; they are modeled independently, in many cases they are even assumed constant. This is despite…
The Constant Elasticity of Variance (CEV) model is mathematically presented and then used in a Credit-Equity hybrid framework. Next, we propose extensions to the CEV model with default: firstly by adding a stochastic volatility diffusion…
In this work we want to provide a general principle to evaluate the CVA (Credit Value Adjustment) for a vulnerable option, that is an option subject to some default event, concerning the solvability of the issuer. CVA is needed to evaluate…
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,…
In this work we develop a tractable structural model with analytical default probabilities depending on a random default barrier and possibly random volatility ideally associated with a scenario based underlying firm debt. We show how to…
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…
This paper develops a two-dimensional structural framework for valuing credit default swaps and corporate bonds in the presence of default contagion. Modelling the values of related firms as correlated geometric Brownian motions with…
While defaults are rare events, losses can be substantial even for credit portfolios with a large number of contracts. Therefore, not only a good evaluation of the probability of default is crucial, but also the severity of losses needs to…
Conic martingales refer to Brownian martingales evolving between bounds. Among other potential applications, they have been suggested for the sake of modeling conditional survival probabilities under partial information, as usual in…
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…
We introduce a novel machine learning model for credit risk by combining tree-boosting with a latent spatio-temporal Gaussian process model accounting for frailty correlation. This allows for modeling non-linearities and interactions among…
This paper studies the stochastic modeling of market drawdown events and the fair valuation of insurance contracts based on drawdowns. We model the asset drawdown process as the current relative distance from the historical maximum of the…
This paper develops a continuous-time filtering framework for estimating a hazard rate subject to an unobservable change-point. This framework naturally arises in both financial and insurance applications, where the default intensity of a…
We consider a structural default model in an interconnected banking network as in Lipton [International Journal of Theoretical and Applied Finance, 19(6), 2016], with mutual obligations between each pair of banks. We analyse the model…
Measuring the corporate default risk is broadly important in economics and finance. Quantitative methods have been developed to predictively assess future corporate default probabilities. However, as a more difficult yet crucial problem,…
We develop a unified valuation theory that incorporates credit risk (defaults), collateralization and funding costs, by expanding the replication approach to a generality that has not yet been studied previously and reaching valuation when…