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The collateral choice option allows a collateral-posting party the opportunity to change the type of security in which the collateral is deposited. Due to non-zero collateral basis spreads, this optionality significantly impacts asset…
We develop and test a fast and accurate semi-analytical formula for single-name default swaptions in the context of a shifted square root jump diffusion (SSRJD) default intensity model. The model can be calibrated to the CDS term structure…
This study examines the disposition effect in both long and short exposure positions in FTSE MIB tracking ETFs using a unique dataset of almost 9 million individual transactions. Building on the integrated framing approach, we extend the…
In the paper we study dynamics of the arbitrage prices of credit default swaps within a hazard process model of credit risk. We derive these dynamics without postulating that the immersion property is satisfied between some relevant…
As impressively shown by the financial crisis in 2007/08, contagion effects in financial networks harbor a great threat for the stability of the entire system. Without sufficient capital requirements for banks and other financial…
We present the qGaussian generalization of the Merton framework, which takes into account slow fluctuations of the volatility of the firms market value of financial assets. The minimal version of the model depends on the Tsallis entropic…
We study hedging and pricing of unattainable contingent claims in a non-Markovian regime-switching financial model. Our financial market consists of a bank account and a risky asset whose dynamics are driven by a Brownian motion and a…
The utility-based pricing of defaultable bonds in the case of stochastic intensity models of default risk is discussed. The Hamilton-Jacobi- Bellman (HJB) equations for the value functions is derived. A finite difference method is used to…
We introduce a class of short-rate models that exhibit a ``higher for longer'' phenomenon. Specifically, the short-rate is modeled as a general time-homogeneous one-factor Markov diffusion on a finite interval. The lower endpoint is assumed…
We study investment and insurance demand decisions for an agent in a theoretical continuous-time expected utility maximization model that combines risky assets with an (exogenous) insurable background risk. This risk takes the form of a…
A standard quantitative method to access credit risk employs a factor model based on joint multivariate normal distribution properties. By extending a one-factor Gaussian copula model to make a more accurate default forecast, this paper…
We consider the Ising model on a small-world network, where the long-range interaction strength $J_2$ is in general different from the local interaction strength $J_1$, and examine its relaxation behaviors as well as phase transitions. As…
Measuring the corporate default risk is broadly important in economics and finance. Quantitative methods have been developed to predictively assess future corporate default probabilities. However, as a more difficult yet crucial problem,…
The aim of this work is to propose an end-by-end modeling framework to evaluate the risk measures of a bank's portfolio of collateralized loans in an economy subject to the climate transition. The economy, organized in sectors, is driven by…
We investigate the dynamics following a global parameter quench for two 1D models with variable-range power-law interactions: a long-range transverse Ising model, which has recently been realised in chains of trapped ions, and a long-range…
In this work we introduce a model of default contagion that combines the approaches of Eisenberg-Noe interbank networks and dynamic mean field interactions. The proposed contagion mechanism provides an endogenous rule for early defaults in…
Using a Wang-Landau entropic sampling scheme, we investigate the effects of quenched bond randomness on a particular case of a triangular Ising model with nearest- ($J_{nn}$) and next-nearest-neighbor ($J_{nnn}$) antiferromagnetic…
We study dynamic hedging of counterparty risk for a portfolio of credit derivatives. Our empirically driven credit model consists of interacting default intensities which ramp up and then decay after the occurrence of credit events. Using…
The two main approaches in credit risk are the structural approach pioneered in Merton (1974) and the reduced-form framework proposed in Jarrow & Turnbull (1995) and in Artzner & Delbaen (1995). The goal of this article is to provide a…
The quantum phase transition of the one-dimensional long-range transverse-field Ising model is explored by combining the quantum Monte Carlo method and stochastic parameter optimization, specifically achieved by tuning correlation ratios so…