Related papers: Default Process Modeling and Credit Valuation Adju…
In this note, we develop stock option price approximations for a model which takes both the risk o default and the stochastic volatility into account. We also let the intensity of defaults be influenced by the volatility. We show that it…
The classical reduced-form and filtration expansion framework in credit risk is extended to the case of multiple, non-ordered defaults, assuming that conditional densities of the default times exist. Intensities and pricing formulas are…
In this work we build a stack of machine learning models aimed at composing a state-of-the-art credit rating and default prediction system, obtaining excellent out-of-sample performances. Our approach is an excursion through the most recent…
In this paper we present a novel approach for firm default probability estimation. The methodology is based on multivariate contingent claim analysis and pair copula constructions. For each considered firm, balance sheet data are used to…
A multi-dimensional extension of the structural default model with firms' values driven by diffusion processes with Marshall-Olkin-inspired correlation structure is presented. Semi-analytical methods for solving the forward calibration…
We investigate the impact of available information on the estimation of the default probability within a generalized structural model for credit risk. The traditional structural model where default is triggered when the value of the firm's…
We propose two structural models for stochastic losses given default which allow to model the credit losses of a portfolio of defaultable financial instruments. The credit losses are integrated into a structural model of default events…
In this short paper, we study the simulation of a large system of stochastic processes subject to a common driving noise and fast mean-reverting stochastic volatilities. This model may be used to describe the firm values of a large pool of…
Credit Value Adjustment (CVA) is the difference between the value of the default-free and credit-risky derivative portfolio, which can be regarded as the cost of the credit hedge. Default probabilities are therefore needed, as input…
Credit risk assessment is a crucial aspect of financial decision-making, enabling institutions to predict the likelihood of default and make informed lending decisions. Two prominent methodologies in credit risk modeling are logistic…
We find approximate solutions of partial integro-differential equations, which arise in financial models when defaultable assets are described by general scalar L\'evy-type stochastic processes. We derive rigorous error bounds for the…
Credit Valuation Adjustment captures the difference in the value of derivative contracts when the counterparty default probability is taken into account. However, in the context of a network of contracts, the default probability of a direct…
Since the Great Financial Crisis (GFC), the use of stress tests as a tool for assessing the resilience of financial institutions to adverse financial and economic developments has increased significantly. One key part in such exercises is…
This paper studies a valuation framework for financial contracts subject to reference and counterparty default risks with collateralization requirement. We propose a fixed point approach to analyze the mark-to-market contract value with…
PD curve calibration refers to the transformation of a set of rating grade level probabilities of default (PDs) to another average PD level that is determined by a change of the underlying portfolio-wide PD. This paper presents a framework…
A model is developed to assess the profitability of loans or mortgages with a specified repayment schedule. Financial institutions face two competing risks: default and prepayment, both influenced by the stochastic evolution of credit…
We extend the valuation of contingent claims in presence of default, collateral and funding to a random functional setting and characterise pre-default value processes by martingales. Pre-default value semimartingales can also be described…
Evaluation of default correlation is an important task in credit risk analysis. In many practical situations, it concerns the joint defaults of several correlated firms, the task that is reducible to a first passage time (FPT) problem. This…
Credit capital requirements in Internal Rating Based approaches require the calibration of two key parameters: the probability of default and the loss-given-default. This letter considers the uncertainty about these two parameters and…
The two main approaches in credit risk are the structural approach pioneered in Merton (1974) and the reduced-form framework proposed in Jarrow & Turnbull (1995) and in Artzner & Delbaen (1995). The goal of this article is to provide a…