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Recent developments in deep learning techniques have motivated intensive research in machine learning-aided stock trading strategies. However, since the financial market has a highly non-stationary nature hindering the application of…
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…
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…
The question of how to stabilize financial systems has attracted considerable attention since the global financial crisis of 2007-2009. Recently, Beale et al. ("Individual versus systemic risk and the regulator's dilemma", Proc Natl Acad…
In this work we provide a simple setting that connects the structural modelling approach of Gai-Kapadia interbank networks with the mean-field approach to default contagion. To accomplish this we make two key contributions. First, we…
We consider a dynamic model of interconnected banks. New banks can emerge, and existing banks can default, creating a birth-and-death setup. Microscopically, banks evolve as independent geometric Brownian motions. Systemic effects are…
In this work we introduce a model of default contagion that combines the approaches of Eisenberg-Noe interbank networks and dynamic mean field interactions. The proposed contagion mechanism provides an endogenous rule for early defaults in…
This study proposes a stochastic model for loss-given-default (LGD) which provides the LGD distribution based on credit market and company-specific financial conditions. The model utilizes last passage time of a linear diffusion…
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…
This article extends the autoregressive count time series model class by allowing for a model with regimes, that is, some of the parameters in the model depend on the state of an unobserved Markov chain. We develop a quasi-maximum…
The issue of model risk in default modeling has been known since inception of the Academic literature in the field. However, a rigorous treatment requires a description of all the possible models, and a measure of the distance between a…
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…
This paper studies a distributionally robust portfolio optimization model with a cardinality constraint for limiting the number of invested assets. We formulate this model as a mixed-integer semidefinite optimization (MISDO) problem by…
We discuss the use of saddlepoint methods in the analysis of portfolios, with particular reference to credit portfolios. The objective is to proceed from a model of the loss distribution, given through probabilities, correlations and the…
In this paper, we propose a dynamical model to capture cascading failures among interconnected organizations in the global financial system. Failures can take the form of bankruptcies, defaults, and other insolvencies. The network that…
Based on an empirical analysis of the network structure of the Austrian inter-bank market, we study the flow of funds through the banking network following exogenous shocks to the system. These shocks are implemented by stochastic changes…
Regression models for limited continuous dependent variables having a non-negligible probability of attaining exactly their limits are presented. The models differ in the number of parameters and in their flexibility. Fractional data being…
Extreme volatility, nonlinear dependencies, and systemic fragility are characteristics of cryptocurrency markets. The assumptions of normality and centralized control in traditional financial risk models frequently cause them to miss these…
Prior social contagion models consider the spread of either one contagion at a time on interdependent networks or multiple contagions on single layer networks or under assumptions of competition. We propose a new threshold model for the…
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…