Related papers: Evaluation of Tranche in Securitization and Long-r…
Excessive leverage, i.e. the abuse of debt financing, is considered one of the primary factors in the default of financial institutions. Systemic risk results from correlations between individual default probabilities that cannot be…
Evaluation of default correlation is an important task in credit risk analysis. In many practical situations, it concerns the joint defaults of several correlated firms, the task that is reducible to a first passage time (FPT) problem. This…
Changes in collateralization have been implicated in significant default (or near-default) events during the financial crisis, most notably with AIG. We have developed a framework for quantifying this effect based on moving between…
We propose a novel credit default model that takes into account the impact of macroeconomic information and contagion effect on the defaults of obligors. We use a set-valued Markov chain to model the default process, which is the set of all…
We introduce a class of damage models on regular lattices with isotropic interactions, as e.g. quasistatic fiber bundles. The system starts intact with a surface-energy threshold required to break any cell sampled from an uncorrelated…
The risk of a credit portfolio depends crucially on correlations between the probability of default (PD) in different economic sectors. Often, PD correlations have to be estimated from relatively short time series of default rates, and the…
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 study the impact of contagion in a network of firms facing credit risk. We describe an intensity based model where the homogeneity assumption is broken by introducing a random environment that makes it possible to take into account the…
A theory of systems with long-range correlations based on the consideration of binary N-step Markov chains is developed. In our model, the conditional probability that the i-th symbol in the chain equals zero (or unity) is a linear function…
As it is known in the finance risk and macroeconomics literature, risk-sharing in large portfolios may increase the probability of creation of default clusters and of systemic risk. We review recent developments on mathematical and…
This paper considers the problem of measuring the credit risk in portfolios of loans, bonds, and other instruments subject to possible default under multi-factor models. Due to the amount of the portfolio, the heterogeneous effect of…
We study large deviations and rare default clustering events in a dynamic large heterogeneous portfolio of interconnected components. Defaults come as Poisson events and the default intensities of the different components in the system…
The probability distribution for the relative return of a portfolio constructed from a subset n of the assets from a benchmark, consisting of N assets whose returns are multivariate normal, is completely characterized by its tracking error.…
We consider a structural credit model for a large portfolio of credit risky assets where the correlation is due to a market factor. By considering the large portfolio limit of this system we show the existence of a density process for the…
This study deals with the pricing and hedging of single-tranche collateralized debt obligations (STCDOs). We specify an affine two-factor model in which a catastrophic risk component is incorporated. Apart from being analytically tractable,…
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…
We investigate the impact of available information on the estimation of the default probability within a generalized structural model for credit risk. The traditional structural model where default is triggered when the value of the firm's…
In this paper, we analyze the generalization performance of the Iterative Hard Thresholding (IHT) algorithm widely used for sparse recovery problems. The parameter estimation and sparsity recovery consistency of IHT has long been known in…
This dissertation investigates the ability of the Ising model to replicate statistical characteristics, or stylized facts, commonly observed in financial assets. The study specifically examines in the S&P500 index the following features:…
We present a new model for credit index derivatives, in the top-down approach. This model has a dynamic loss intensity process with volatility and jumps and can include counterparty risk. It handles CDS, CDO tranches, Nth-to-default and…