Related papers: Modelling Correlations in Portfolio Credit Risk
Financial correlations play a central role in financial theory and also in many practical applications. From theoretical point of view, the key interest is in a proper description of the structure and dynamics of correlations. From…
We present a class of flexible and tractable static factor models for the term structure of joint default probabilities, the factor copula models. These high-dimensional models remain parsimonious with pair-copula constructions, and nest…
This paper generalizes Moody's correlated binomial default distribution for homogeneous (exchangeable) credit portfolio, which is introduced by Witt, to the case of inhomogeneous portfolios. As inhomogeneous portfolios, we consider two…
We consider the problem of the statistical uncertainty of the correlation matrix in the optimization of a financial portfolio. We show that the use of clustering algorithms can improve the reliability of the portfolio in terms of the ratio…
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…
This paper introduces a credit risk rating model for credit risk assessment in quantitative finance, aiming to categorize borrowers based on their behavioral data. The model is trained on data from Experian, a widely recognized credit…
Credit risk prediction is an effective way of evaluating whether a potential borrower will repay a loan, particularly in peer-to-peer lending where class imbalance problems are prevalent. However, few credit risk prediction models for…
We introduce a novel machine learning model for credit risk by combining tree-boosting with a latent spatio-temporal Gaussian process model accounting for frailty correlation. This allows for modeling non-linearities and interactions among…
We show that financial correlations exhibit a non-trivial dynamic behavior. We introduce a simple phenomenological model of a multi-asset financial market, which takes into account the impact of portfolio investment on price dynamics. This…
We introduce a new numerical approximation method for functionals of factor credit portfolio models based on the theory of mod-$\phi$ convergence and mod-$\phi$ approximation schemes. The method can be understood as providing correction…
Financial markets are exposed to systemic risk, the risk that a substantial fraction of the system ceases to function and collapses. Systemic risk can propagate through different mechanisms and channels of contagion. One important form of…
We propose a Markov chain model for credit rating changes. We do not use any distributional assumptions on the asset values of the rated companies but directly model the rating transitions process. The parameters of the model are estimated…
We introduce a new method to calculate the credit exposure of European and path-dependent options. The proposed method is able to calculate accurate expected exposure and potential future exposure profiles under the risk-neutral and the…
Credit assessments activities are essential for financial institutions and allow the global economy to grow. Building robust, solid and accurate models that estimate the probability of a default of a company is mandatory for credit…
A new methodology for incorporating LGD correlation effects into the Basel II risk weight functions is introduced. This methodology is based on modelling of LGD and default event with a single loss variable. The resulting formulas for…
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…
We provide an overview of the relationship between financial networks and systemic risk. We present a taxonomy of different types of systemic risk, differentiating between direct externalities between financial organizations (e.g.,…
The present paper provides a multi-period contagion model in the credit risk field. Our model is an extension of Davis and Lo's infectious default model. We consider an economy of n firms which may default directly or may be infected by…
Risk-averse investors often wish to exclude stocks from their portfolios that bear high credit risk, which is a measure of a firm's likelihood of bankruptcy. This risk is commonly estimated by constructing signals from quarterly accounting…
Determining contributions by sub-portfolios or single exposures to portfolio-wide economic capital for credit risk is an important risk measurement task. Often economic capital is measured as Value-at-Risk (VaR) of the portfolio loss…