Related papers: Robust Bernoulli Mixture Models for Credit Portfol…
We discuss the parameter estimation of the probability of default (PD), the correlation between the obligors, and a phase transition. In our previous work, we studied the problem using the beta-binomial distribution. A non-equilibrium phase…
We propose a Gaussian-copula-based framework that learns deal-level dependence directly from observed joint success frequencies across founder, geography, and market attributes. Holding marginal deal success probabilities fixed, deal-level…
First passage models, where corporate assets undergo correlated random walks and a company defaults if its assets fall below a threshold provide an attractive framework for modeling the default process. Typical one year default correlations…
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…
Accurately estimating risk measures for financial portfolios is critical for both financial institutions and regulators. However, many existing models operate at the aggregate portfolio level and thus fail to capture the complex…
Analytical, free of time consuming Monte Carlo simulations, framework for credit portfolio systematic risk metrics calculations is presented. Techniques are described that allow calculation of portfolio-level systematic risk measures…
Diffusion in a linear potential in the presence of position-dependent killing is used to mimic a default process. Different assumptions regarding transport coefficients, initial conditions, and elasticity of the killing measure lead to…
In actuarial research, a task of particular interest and importance is to predict the loss cost for individual risks so that informative decisions are made in various insurance operations such as underwriting, ratemaking, and capital…
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…
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…
There exists a range of different models for estimating and simulating credit risk transitions to optimally manage credit risk portfolios and products. In this chapter we present a Coupled Markov Chain approach to model rating transitions…
In this paper we assume a multivariate risk model has been developed for a portfolio and its capital derived as a homogeneous risk measure. The Euler (or gradient) principle, then, states that the capital to be allocated to each component…
Banks and financial institutions all over the world manage portfolios containing tens of thousands of customers. Not all customers are high credit-worthy, and many possess varying degrees of risk to the Bank or financial institutions that…
We study dynamic hedging of counterparty risk for a portfolio of credit derivatives. Our empirically driven credit model consists of interacting default intensities which ramp up and then decay after the occurrence of credit events. Using…
We develop factor copula models for analysing the dependence among mixed continuous and discrete responses. Factor copula models are canonical vine copulas that involve both observed and latent variables, hence they allow tail, asymmetric…
Analytical, free of time consuming Monte Carlo simulations, framework for credit portfolio systematic risk metrics calculations is presented. Techniques are described that allow calculation of portfolio-level systematic risk measures…
Uncertain information on input parameters of reliability models is usually modeled by considering these parameters as random, and described by marginal distributions and a dependence structure of these variables. In numerous real-world…
We present a constructive approach to Bernstein copulas with an admissible discrete skeleton in arbitrary dimensions when the underlying marginal grid sizes are smaller than the number of observations. This prevents an overfitting of the…
We study a simple, solvable model that allows us to investigate effects of credit contagion on the default probability of individual firms, in both portfolios of firms and on an economy wide scale. While the effect of interactions may be…
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…