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Safety-critical prediction systems, such as autonomous vehicles, weather forecasters, and medical monitors, commonly rely on probabilistic forecasters. These forecasters make predictions about possible future outcomes, and their quality and…
To meet the Basel II regulatory requirements for the Advanced Measurement Approaches in operational risk, the bank's internal model should make use of the internal data, relevant external data, scenario analysis and factors reflecting the…
This paper concerns sequential computation of risk measures for financial data and asks how, given a risk measurement procedure, we can tell whether the answers it produces are `correct'. We draw the distinction between `external' and…
The existence of asymmetric information has always been a major concern for financial institutions. Financial intermediaries such as commercial banks need to study the quality of potential borrowers in order to make their decision on…
This article gives a probabilistic overview of the widely used method of default probability estimation proposed by K. Pluto and D. Tasche. There are listed detailed assumptions and derivation of the inequality where the probability of…
This paper proposes a portfolio construction framework designed to remain robust under estimation error, non-stationarity, and realistic trading constraints. The methodology combines dynamic asset eligibility, deterministic rebalancing, and…
Predicting corporate default risk has long been a crucial topic in the finance field, as bankruptcies impose enormous costs on market participants as well as the economy as a whole. This paper aims to forecast frailty correlated default…
Complex non-linear interactions between banks and assets we model by two time-dependent Erd\H{o}s Renyi network models where each node, representing bank, can invest either to a single asset (model I) or multiple assets (model II). We use…
We introduce a novel class of credit risk models in which the drift of the survival process of a firm is a linear function of the factors. The prices of defaultable bonds and credit default swaps (CDS) are linear-rational in the factors.…
It is a well known fact that recovery rates tend to go down when the number of defaults goes up in economic downturns. We demonstrate how the loss given default model with the default and recovery dependent via the latent systematic risk…
We study financial networks where banks are connected through bilateral liabilities and may default when resources are insufficient to meet obligations. We consider both the standard proportional clearing model and a priority-proportional…
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…
The event of large losses plays an important role in credit risk. As these large losses are typically rare, and portfolios usually consist of a large number of positions, large deviation theory is the natural tool to analyze the tail…
Online inclusive financial services encounter significant financial risks due to their expansive user base and low default costs. By real-world practice, we reveal that utilizing longer-term user payment behaviors can enhance models'…
Many banks adopt the Loss Distribution Approach to quantify the operational risk capital charge under Basel II requirements. It is common practice to estimate the capital charge using the 0.999 quantile of the annual loss distribution,…
We present a detailed methodological study of the application of the modified profile likelihood method for the calibration of nonlinear financial models characterised by a large number of parameters. We apply the general approach to the…
We study an optimal investment/consumption problem in a model capturing market and credit risk dependencies. Stochastic factors drive both the default intensity and the volatility of the stocks in the portfolio. We use the martingale…
This paper proposes a dynamic process of portfolio risk measurement to address potential information loss. The proposed model takes advantage of financial big data to incorporate out-of-target-portfolio information that may be missed when…
In this paper, we investigate the credit risk in the loan portfolio of banks following different business models. We develop a data-driven methodology for identifying the business models of the 365 largest European banks that is suitable…
In normal times, it is assumed that financial institutions operating in non-overlapping sectors have complementary and distinct outcomes, typically reflected in mostly uncorrelated outcomes and asset returns. Such is the reasoning behind…