Related papers: Corporate Default Behavior: A Simple Stochastic Mo…
Small and Medium-sized Enterprises (SMEs) are known to play a vital role in economic growth, employment, and innovation. However, they tend to face significant challenges in accessing credit due to limited financial histories, collateral…
The importance of adequately modeling credit risk has once again been highlighted in the recent financial crisis. Defaults tend to cluster around times of economic stress due to poor macro-economic conditions, {\em but also} by directly…
Monitoring and reporting incorrect acts are pervasive for maintaining human cooperation, but in theory it is unclear how they influence each other. To explore their possible interactions we consider spatially structured population where…
We analyze 18 quadrillion models for the joint pricing of corporate bond and stock returns. Strikingly, we find that equity and nontradable factors alone suffice to explain corporate bond risk premia once their Treasury term structure risk…
Dynamical systems with components whose sizes evolve according to multiplicative stochastic rules have been recently combined with entry and exit processes. We show that the assumptions usually made in modeling exits are at odds with the…
We prove that the default times (or any of their minima) in the dynamic Gaussian copula model of Cr{\'e}pey, Jeanblanc, and Wu (2013) are invariance times in the sense of Cr{\'e}pey and Song (2017), with related invariance probability…
This paper considers mutual obligations in the interconnected bank system and analyzes their influence on joint and marginal survival probabilities as well as CDS and FTD prices for the individual banks. To make the role of mutual…
Systemic financial risk refers to the simultaneous failure or destabilization of multiple financial institutions, often triggered by contagion mechanisms or common exposures to shocks. In this paper, we present a dynamical model of bank…
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…
We consider the problem of modelling the term structure of defaultable bonds, under minimal assumptions on the default time. In particular, we do not assume the existence of a default intensity and we therefore allow for the possibility of…
First passage models, where corporate assets undergo a random walk and default occurs if the assets fall below a threshold, provide an attractive framework for modeling the default process. Recently such models have been generalized to…
We apply multiple testing procedures to the validation of estimated default probabilities in credit rating systems. The goal is to identify rating classes for which the probability of default is estimated inaccurately, while still…
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…
In this paper, a new reliability model has been developed for a single system degrading stochastically which experiences soft and hard failure. Soft failure occurs when the physical deterioration level of the system is greater than a…
In the pursuit of modelling a loan's probability of default (PD) over its lifetime, repeat default events are often ignored when using Cox Proportional Hazard (PH) models. Excluding such events may produce biased and inaccurate…
We explore a stochastic model that enables capturing external influences in two specific ways. The model allows for the expression of uncertainty in the parametrisation of the stochastic dynamics and incorporates patterns to account for…
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…
This paper develops a continuous-time filtering framework for estimating a hazard rate subject to an unobservable change-point. This framework naturally arises in both financial and insurance applications, where the default intensity of a…
We develop a model for credit rating migration that accounts for the impact of economic state fluctuations on default probabilities. The joint process for the economic state and the rating is modelled as a time-homogeneous Markov chain.…
We propose and analyze numerically a simple dynamical model that describes the firm behaviors under uncertainty of demand forecast. Iterating this simple model and varying some parameters values we observe a wide variety of market dynamics…