Related papers: Credit Spreads' Term Structure: Stochastic Modelin…
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…
Credit risk stress testing has become an important risk management device which is used both by banks internally and by regulators. Stress testing is complex because it essentially means projecting a bank's full balance sheet conditional on…
Stochastic reduced-order models are widely used to represent the effective dynamics of complex systems, but estimating their drift and diffusion coefficients from data remains challenging. Standard approaches often rely on short-time…
Survival analysis has become a standard approach for modelling time to default by time-varying covariates in credit risk. Unlike most existing methods that implicitly assume a stationary data-generating process, in practise, mortgage…
A standard quantitative method to access credit risk employs a factor model based on joint multivariate normal distribution properties. By extending a one-factor Gaussian copula model to make a more accurate default forecast, this paper…
Corporate defaults may be triggered by some major market news or events such as financial crises or collapses of major banks or financial institutions. With a view to develop a more realistic model for credit risk analysis, we introduce a…
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…
This paper is concerned with finite dimensional models for the entire term structure for energy futures. As soon as a finite dimensional set of possible yield curves is chosen, one likes to estimate the dynamic behaviour of the yield curve…
We present a class of flexible and tractable static factor models for the term structure of joint default probabilities, the factor copula models. These high-dimensional models remain parsimonious with pair-copula constructions, and nest…
The utility-based pricing of defaultable bonds in the case of stochastic intensity models of default risk is discussed. The Hamilton-Jacobi- Bellman (HJB) equations for the value functions is derived. A finite difference method is used to…
The instability of the financial system as experienced in recent years and in previous periods is often linked to credit defaults, i.e., to the failure of obligors to make promised payments. Given the large number of credit contracts, this…
In the third part of this series we introduce consistent relative value measures for CDS-Bond basis trades using the bond-implied CDS term structure derived from fitted survival rate curves. We explain why this measure is better than the…
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…
The modeling of the probability of joint default or total number of defaults among the firms is one of the crucial problems to mitigate the credit risk since the default correlations significantly affect the portfolio loss distribution and…
We provide analytical pricing formula of corporate defaultable bond with both expected and unexpected default in the case with stochastic default intensity. In the case with constant short rate and exogenous default recovery using PDE…
This paper expands traditional stochastic volatility models by allowing for time-varying skewness without imposing it. While dynamic asymmetry may capture the likely direction of future asset returns, it comes at the risk of leading to…
The imputation of missing values represents a significant obstacle for many real-world data analysis pipelines. Here, we focus on time series data and put forward SSSD, an imputation model that relies on two emerging technologies,…
In this paper we are interested in term structure models for pricing zero coupon bonds under rapidly oscillating stochastic volatility. We analyze solutions to the generalized Cox-Ingersoll-Ross two factors model describing clustering of…
The paper tests the validity of the critique of the fiscal theory of the price level. A stochastic general equilibrium model with continuous time is constructed. An active fiscal policy and a passive monetary policy have been set. Monetary…
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…