Related papers: Bayesian Estimation of Corporate Default Spreads
In structural credit risk models, default events and the ensuing losses are both derived from the asset values at maturity. Hence it is of utmost importance to choose a distribution for these asset values which is in accordance with…
Mixed Probit models are widely applied in many fields where prediction of a binary response is of interest. Typically, the random effects are assumed to be independent but this is seldom the case for many real applications. In the credit…
We consider the problem of accurately measuring the credit risk of a portfolio consisting of loss exposures such as loans, bonds and other financial assets. We are particularly interested in the probability of large portfolio losses. We…
Portfolio optimization is a critical task in investment. Most existing portfolio optimization methods require information on the distribution of returns of the assets that make up the portfolio. However, such distribution information is…
In this paper, we study mid-cap companies, i.e. publicly traded companies with less than US $10 billion in market capitalisation. Using a large dataset of US mid-cap companies observed over 30 years, we look to predict the default…
In this paper, the credit scoring problem is studied by incorporating networked information, where the advantages of such incorporation are investigated theoretically in two scenarios. Firstly, a Bayesian optimal filter is proposed to…
Interbank contagion can theoretically exacerbate losses in a financial system and lead to additional cascade defaults during downturn. In this paper we produce default analysis using both regression and neural network models to verify…
Volatility estimation based on high-frequency data is key to accurately measure and control the risk of financial assets. A L\'{e}vy process with infinite jump activity and microstructure noise is considered one of the simplest, yet…
In this paper we formulate a corporate bond (CB) pricing model for deriving the term structure of default probabilities (TSDP) and the recovery rate (RR) for each pair of industry factor and credit rating grade, and these derived TSDP and…
Credit scoring is an essential tool used by global financial institutions and credit lenders for financial decision making. In this paper, we introduce a new method based on Gaussian Mixture Model (GMM) to forecast the probability of…
In this article, we study the problem of pricing defaultable bond with discrete default intensity and barrier under constant risk free short rate using higher order binary options and their integrals. In our credit risk model, the risk free…
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…
Default risk significantly affects the corporate policies of a firm. We develop a model in which a limited liability entity subject to Poisson default shock jointly sets its dividend policy and capital structure to maximize the expected…
Bayesian clinical trials can benefit of available historical information through the elicitation of informative prior distributions. Concerns are however often raised about the potential for prior-data conflict and the impact of Bayes test…
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…
In banking practice, rating transition matrices have become the standard approach of deriving multi-year probabilities of default (PDs) from one-year PDs, the latter normally being available from Basel ratings. Rating transition matrices…
Jump diffusion processes are widely used to model asset prices over time, mainly for their ability to capture complex discontinuous behavior, but inference on the model parameters remains a challenge. Here our goal is posterior inference on…
Overrides of credit ratings are important correctives of ratings that are determined by statistical rating models. Financial institutions and banking regulators agree on this because on the one hand errors with ratings of corporates or…
We present a computational method for measuring financial risk by estimating the Value at Risk and Expected Shortfall from financial series. We have made two assumptions: First, that the predictive distributions of the values of an asset…
The literature on using yield curves to forecast recessions customarily uses 10-year--three-month Treasury yield spread without verification on the pair selection. This study investigates whether the predictive ability of spread can be…