Related papers: Modeling Credit Risk with Partial Information
We study the pricing of credit derivatives with asymmetric information. The managers have complete information on the value process of the firm and on the default threshold, while the investors on the market have only partial observations,…
Financial markets have long since been modeled using stochastic methods such as Brownian motion, and more recently, rough volatility models have been built using fractional Brownian motion. This fractional aspect brings memory into the…
This paper presents a convenient framework for modeling default process and pricing derivative securities involving credit risk. The framework provides an integrated view of credit valuation adjustment by linking distance-to-default,…
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…
In this paper we introduce a sublinear conditional expectation with respect to a family of possibly nondominated probability measures on a progressively enlarged filtration. In this way, we extend the classic reduced-form setting for credit…
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…
We consider a structural default model in an interconnected banking network as in Lipton [International Journal of Theoretical and Applied Finance, 19(6), 2016], with mutual obligations between each pair of banks. We analyse the model…
There is empirical evidence that recovery rates tend to go down just when the number of defaults goes up in economic downturns. This has to be taken into account in estimation of the capital against credit risk required by Basel II to cover…
This work focuses on financial risks from a probabilistic point of view. The value of a firm is described as a geometric Brownian motion and default emerges as a first passage time event. On the technical side, the critical threshold that…
In credit risk literature, the existence of an equivalent martingale measure is stipulated as one of the main assumptions in the hazard process model. Here we show by construction the existence of a measure that turns the discounted stock…
This paper develops a two-dimensional structural framework for valuing credit default swaps and corporate bonds in the presence of default contagion. Modelling the values of related firms as correlated geometric Brownian motions with…
A negative basis trade enters a long bond position and buys protection on the issuer of the bond through credit default swap (CDS), aiming at arbitrage profit due to the bond-CDS basis. To classic reduced form model theorists, the existence…
Based on criteria of mathematical simplicity and consistency with empirical market data, a stochastic volatility model is constructed, the volatility process being driven by fractional noise. Price return statistics and asymptotic behavior…
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…
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,…
In recent years research on credit risk modelling has mainly focused on default probabilities. Recovery rates are usually modelled independently, quite often they are even assumed constant. Then, however, the structural connection between…
We study information elicitation in cost-function-based combinatorial prediction markets when the market maker's utility for information decreases over time. In the sudden revelation setting, it is known that some piece of information will…
This paper provides sufficient conditions for the time of bankruptcy (of a company or a state) for being a totally inaccessible stopping time and provides the explicit computation of its compensator in a framework where the flow of market…
In this paper, we deal with an axiomatic approach to default risk. We introduce the notion of a default risk measure, which generalizes the classical probability of default (PD), and allows to incorporate model risk in various forms. We…
We consider a multivariate default system where random environmental information is available. We study the dynamics of the system in a general setting and adopt the point of view of change of probability measures. We also make a link with…