Related papers: Phase transitions in debt recycling
We consider a dynamic pricing problem where customer response to the current price is impacted by the customer price expectation, aka reference price. We study a simple and novel reference price mechanism where reference price is the…
We study the problem of optimal long term portfolio selection with a view to beat a benchmark. Two kinds of objectives are considered. One concerns the probability of outperforming the benchmark and seeks either to minimise the decay rate…
We consider the problem of forecasting debt recovery from large portfolios of non-performing unsecured consumer loans under management. The state of the art in industry is to use stochastic processes to approximately model payment behaviour…
This paper examines the possibility of using derivative-implied risk premia to explain stock returns. The rapid development of derivative markets has led to the possibility of trading various kinds of risks, such as credit and interest rate…
We study how to assess the potential benefit of diversifying an equity portfolio by investing within and across equity sectors. We analyse 20 years of US stock price data, which includes the global financial crisis (GFC) and the COVID-19…
A direct method for calculating default rates by industry and target corporate segments is not possible given the lack of statistical data. The proposed paper considers a model for filtering the dynamics of the probability of default of…
In the paper we study dynamics of the arbitrage prices of credit default swaps within a hazard process model of credit risk. We derive these dynamics without postulating that the immersion property is satisfied between some relevant…
A portfolio of different stocks and a risk-less security whose composition is dynamically maintained stable by trading shares at any time step leads to a growth of the capital with a nonrandom rate. This is the key for the theory of…
Climate-driven flood risk increasingly necessitates managed retreat through government buyout programmes, yet empirical evidence documents substantial racial and economic disparities in programme implementation. Here we develop a…
This paper provides the first causal evidence that credit supply expansion caused the 1999-2010 U.S. business cycle mainly through the channel of household leverage (debt-to-income ratio). Specifically, induced by net export growth, credit…
We empirically analyze the reversion of financial market trends with time horizons ranging from minutes to decades. The analysis covers equities, interest rates, currencies and commodities and combines 14 years of futures tick data, 30…
Operating under real world conditions is challenging due to the possibility of a wide range of failures induced by execution errors and state uncertainty. In relatively benign settings, such failures can be overcome by retrying or executing…
Credit scores are critical for allocating consumer debt in the United States, yet little evidence is available on their performance. We benchmark a widely used credit score against a machine learning model of consumer default and find…
We study how the climate transition through a low-carbon economy, implemented by carbon pricing, propagates in a credit portfolio and precisely describe how carbon price dynamics affects credit risk measures such as probability of default,…
We propose a continuous-time stock-flow consistent model for inventory dynamics in an economy with firms, banks, and households. On the supply side, firms decide on production based on adaptive expectations for sales demand and a desired…
Modelling all possible life cycles of a company in a highly competitive economic environment gives a significant advantage to the owner in his business investment activities. This article proposes and analyses a dynamic model of a company's…
In this paper, we present a simple microeconomic model with linear continuous-time dynamics that describes a production-inventory system with debt repayment. This model is formulated in terms of optimal control and its exact solutions are…
We consider an equity market subject to risk from both unhedgeable shocks and default. The novelty of our work is that to partially offset default risk, investors may dynamically trade in a credit default swap (CDS) market. Assuming…
Securitization is a financial process where the cash flows of income-generating assets are sold to institutional investors as securities, liquidating illiquid assets. This practice presents persistent challenges due to the absence of a…
Systemic liquidity risk, defined by the IMF as "the risk of simultaneous liquidity difficulties at multiple financial institutions", is a key topic in macroprudential policy and financial stress analysis. Specialized models to simulate…