Related papers: A hypothesis test for the long-term calibration in…
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…
Binary classification is highly used in credit scoring in the estimation of probability of default. The validation of such predictive models is based both on rank ability, and also on calibration (i.e. how accurately the probabilities…
We develop a model to predict consumer default based on deep learning. We show that the model consistently outperforms standard credit scoring models, even though it uses the same data. Our model is interpretable and is able to provide a…
The article proposes a method of designing a statistically distinguishable rating scale that is not excessive in relation to the existing observation statistics. This allows for more stable validation with a fixed maximum number of…
Verification of temporal logic properties plays a crucial role in proving the desired behaviors of continuous systems. In this paper, we propose an interval method that verifies the properties described by a bounded signal temporal logic.…
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…
This paper presents a meta-learning framework for credit risk assessment of Italian Small and Medium Enterprises (SMEs) that explicitly addresses the temporal misalignment of credit scoring models. The approach aligns financial statement…
Achieving error rates that meet or exceed the fault-tolerance threshold is a central goal for quantum computing experiments, and measuring these error rates using randomized benchmarking is now routine. However, direct comparison between…
We introduce the general arbitrage-free valuation framework for counterparty risk adjustments in presence of bilateral default risk, including default of the investor. We illustrate the symmetry in the valuation and show that the adjustment…
As it is known in the finance risk and macroeconomics literature, risk-sharing in large portfolios may increase the probability of creation of default clusters and of systemic risk. We review recent developments on mathematical and…
We present a continuous-time maximum likelihood estimation methodology for credit rating transition probabilities, taking into account the presence of censored data. We perform rolling estimates of the transition matrices with exponential…
Survivorship analysis allows to statistically analyze situations that can be modeled as waiting times to an event. These waiting times are characterized by the cumulative hazard rate, which can be estimated by the Nelson-Aalen estimator or…
We address the so-called calibration problem which consists of fitting in a tractable way a given model to a specified term structure like, e.g., yield or default probability curves. Time-homogeneous jump-diffusions like Vasicek or…
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…
We analyze the fluctuation of the loss from default around its large portfolio limit in a class of reduced-form models of correlated firm-by-firm default timing. We prove a weak convergence result for the fluctuation process and use it for…
A new procedure is presented for the objective comparison and evaluation of default definitions. This allows the lender to find a default threshold at which the financial loss of a loan portfolio is minimised, in accordance with Basel II.…
In this paper we propose a copula contagion mixture model for correlated default times. The model includes the well known factor, copula, and contagion models as its special cases. The key advantage of such a model is that we can study the…
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…
Studies accumulate over time and meta-analyses are mainly retrospective. These two characteristics introduce dependencies between the analysis time, at which a series of studies is up for meta-analysis, and results within the series.…
We derive a feasible criterion for the bias-optimal selection of the tuning parameters involved in estimating the integrated volatility of the spot volatility via the simple realized estimator by Barndorff-Nielsen and Veraart (2009). Our…