Related papers: Evaluation of Tranche in Securitization and Long-r…
We consider a structural stochastic volatility model for the loss from a large portfolio of credit risky assets. Both the asset value and the volatility processes are correlated through systemic Brownian motions, with default determined by…
Given a multi-dimensional It\^{o} process whose drift and diffusion terms are adapted processes, we construct a weak solution to a stochastic differential equation that matches the distribution of the It\^{o} process at each fixed time.…
We introduce a probabilistic framework that represents stylized banking networks with the aim of predicting the size of contagion events. Most previous work on random financial networks assumes independent connections between banks, whereas…
The issue of model risk in default modeling has been known since inception of the Academic literature in the field. However, a rigorous treatment requires a description of all the possible models, and a measure of the distance between a…
Using combinatorial optimisation techniques we study the critical properties of the two- and the three-dimensional Ising model with uniformly distributed random antiferromagnetic couplings $(1 \le J_i \le 2)$ in the presence of a…
Default risk calculus plays a crucial role in portfolio optimization when the risky asset is under threat of bankruptcy. However, traditional stochastic control techniques are not applicable in this scenario, and additional assumptions are…
We propose a dynamic mean field model for `systemic risk' in large financial systems, which we derive from a system of interacting diffusions on the positive half-line with an absorbing boundary at the origin. These diffusions represent the…
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…
With the reform of interest rate benchmarks, interbank offered rates (IBORs) like LIBOR have been replaced by risk-free rates (RFRs), such as the Secured Overnight Financing Rate (SOFR) in the U.S. and the Euro Short-Term Rate (\euro STR)…
Randomly coupled Ising spins constitute the classical model of collective phenomena in disordered systems, with applications covering ferromagnetism, combinatorial optimization, protein folding, stock market dynamics, and social dynamics.…
We present a simple model that allows hysteresis loops with exchange bias to be reproduced. The model is a modification of the T=0 random field Ising model driven by an external field and with synchronous local relaxation dynamics. The main…
Derivatives, as a critical class of financial instruments, isolate and trade the price attributes of risk assets such as stocks, commodities, and indices, aiding risk management and enhancing market efficiency. However, traditional hedging…
The main goal of this paper is an application of Bayesian inference in testing the relation between risk and return on the financial instruments. On the basis of the Intertemporal CAPM model we built a general sampling model suitable in…
A possible data source for the estimation of asset correlations is default time series. This study investigates the systematic error that is made if the exposure pool underlying a default time series is assumed to be homogeneous when in…
We analyse the critical properties of a weakly diluted (random) Ising model with the long-range interaction decaying with distance $x$ as $\sim x^{-d-\sigma}$ in a $d$-dimensional space. It is known to belong to a new long-range random…
We propose a multivariate framework for modeling dependent default times that extends the classical Cox process by incorporating both common and idiosyncratic shocks. Our construction uses c\`adl\`ag, increasing processes to model…
After a zero temperature quench, we study the kinetics of the one-dimensional Ising model with long-range interactions between spins at distance $r$ decaying as $r^{-\alpha}$, with $\alpha \le 1$. As shown in our recent study [SciPost Phys…
We show that stochastic recovery always leads to counter-intuitive behaviors in the risk measures of a CDO tranche - namely, continuity on default and positive credit spread risk cannot be ensured simultaneously. We then propose a simple…
Simulations using the Forward Flux Sampling method have shown a nonmonotonic de- pendence of the homogeneous nucleation rate on the shear rate for a sheared two dimensional Ising model [R. J. Allen et al, arXiv cond-mat/0805.3029]. For…
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…