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The notion of a credit spread curve is fundamental in fixed income investing, but in practice it is not `given' and needs to be constructed from bond prices either for a particular issuer, or for a sector rating-by-rating. Rather than…

This paper introduces a novel stochastic model for credit spreads. The stochastic approach leverages the diffusion of default intensities via a CIR++ model and is formulated within a risk-neutral probability space. Our research primarily…

This paper analyzes the hypothesis that returns play a risk-compensating role in the market for corporate revolving lines of credit. Specifically, we test whether borrower risk and the expected return on these debt instruments are…

The instability of the financial system as experienced in recent years and in previous periods is often linked to credit defaults, i.e., to the failure of obligors to make promised payments. Given the large number of credit contracts, this…

The proposed model is aimed to reveal important patterns in the behavior of a simplified financial system. The patterns could be detected as regular cycles consisting of debt bubbles and crises. Financial cycles have a well defined…

We study financial systems from a game-theoretic standpoint. A financial system is represented by a network, where nodes correspond to firms, and directed labeled edges correspond to debt contracts between them. The existence of cycles in…

We study a simple, solvable model that allows us to investigate effects of credit contagion on the default probability of individual firms, in both portfolios of firms and on an economy wide scale. While the effect of interactions may be…

In this three-part series of papers, we argue that the conventional spread measures are not well defined for credit-risky bonds and introduce a set of credit term structures which correct for the biases associated with the strippable cash…

We introduce a novel class of credit risk models in which the drift of the survival process of a firm is a linear function of the factors. The prices of defaultable bonds and credit default swaps (CDS) are linear-rational in the factors.…

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…

In economic studies and popular media, interest rates are routinely cited as a major factor behind commodity price fluctuations. At the same time, the transmission channels are far from transparent, leading to long-running debates on the…

Mobile-based financial services have made it possible for the traditionally unbanked to access infrastructure that have been routinely unattainable. Researchers have explored how these systems have made for safer environments to send and…

Financial networks help firms manage risk but also enable financial shocks to spread. Despite their importance, existing models of financial networks have several limitations. Prior works often consider a static network with a simple…

In this paper, we assess how the stability of financial networks is affected by interconnectedness considering its tiniest variation: the edge. We compute the impact of edges as the percentage difference in the systemic risk (SR) of the…

In fixed income sector, the yield curve is probably the most observed indicator by the market for trading and fifinancing purposes. A yield curve plots interest rates across different contract maturities from short end to as long as 30…

We analyze cascades of defaults in an interbank loan market. The novel feature of this study is that the network structure and the size distribution of banks are derived from empirical data. We find that the ability of a defaulted…

This paper offers a new class of models of the term structure of interest rates. We allow each instantaneous forward rate to be driven by a different stochastic shock, constrained in such a way as to keep the forward rate curve continuous.…

This work explores the characteristics of financial contagion in networks whose links distributions approaches a power law, using a model that defines banks balance sheets from information of network connectivity. By varying the parameters…

The term structure of credit spreads is studied with an aim to predict its future movements. A completely new approach to tackle this problem is presented, which utilizes nonlinear parametric models. The Brain-Cousens regression model with…

The purpose of this paper relies on the study of long term affine yield curves modeling. It is inspired by the Ramsey rule of the economic literature, that links discount rate and marginal utility of aggregate optimal consumption. For such…