Related papers: Functional Correlation Approach to Operational Ris…
In this paper, we propose a method that provides a useful technique to compare relationship between risks involved that takes customer become defaulter and debt collection process that might make this defaulter recovered. Through estimation…
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…
The dynamic network of relationships among corporations underlies cascading economic failures including the current economic crisis, and can be inferred from correlations in market value fluctuations. We analyze the time dependence of the…
We study historical correlations and lead-lag relationships between individual stock risk (volatility of daily stock returns) and market risk (volatility of daily returns of a market-representative portfolio) in the US stock market. We…
The latest financial crisis has painfully revealed the dangers arising from a globally interconnected financial system. Conventional approaches based on the notion of the existence of equilibrium and those which rely on statistical…
A functional risk curve gives the probability of an undesirable event as a function of the value of a critical parameter of a considered physical system. In several applicative situations, this curve is built using phenomenological…
Recent financial disasters emphasised the need to investigate the consequence associated with the tail co-movements among institutions; episodes of contagion are frequently observed and increase the probability of large losses affecting…
Conditional forecasts of risk measures play an important role in internal risk management of financial institutions as well as in regulatory capital calculations. In order to assess forecasting performance of a risk measurement procedure,…
Machine Learning models are being extensively used in safety critical applications where errors from these models could cause harm to the user. Such risks are amplified when multiple machine learning models, which are deployed concurrently,…
The fragility of financial systems was starkly demonstrated in early 2023 through a cascade of major bank failures in the United States, including the second, third, and fourth largest collapses in the US history. The highly interdependent…
The banking systems that deal with risk management depend on underlying risk measures. Following the Basel II accord, there are two separate methods by which banks may determine their capital requirement. The Value at Risk measure plays an…
We review recent progress in modeling credit risk for correlated assets. We start from the Merton model which default events and losses are derived from the asset values at maturity. To estimate the time development of the asset values, the…
We study a credit risk model which captures effects of economic interactions on a firm's default probability. Economic interactions are represented as a functionally defined graph, and the existence of both cooperative, and competitive,…
Systemic risk in banking systems remains a crucial issue that it has not been completely understood. In our toy model, banks are exposed to two sources of risks, namely, market risk from their investments in assets external to the banking…
Systemic risk is a rapidly developing area of research. Classical financial models often do not adequately reflect the phenomena of bubbles, crises, and transitions between them during credit cycles. To study very improbable events,…
The current research on credit risk is primarily focused on modeling default probabilities. Recovery rates are often treated as an afterthought; they are modeled independently, in many cases they are even assumed constant. This is despite…
Much research in systemic risk is focused on default contagion. While this demands an understanding of valuation, fewer articles specifically deal with the existence, the uniqueness, and the computation of equilibrium prices in structural…
This paper considers the use for Value-at-Risk computations of the so-called Beta-Kotz distribution based on a general family of distributions including the classical Gaussian model. Actually, this work develops a new method for estimating…
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 study the dynamics of correlation and variance in systems under the load of environmental factors. A universal effect in ensembles of similar systems under the load of similar factors is described: in crisis, typically, even before…