Develops a three-currency HJM framework for Brazilian credit markets, finding significant credit spread differences between indexed segments.
problem Identifies and quantifies differences in corporate credit spreads between two parallel segments of the Brazilian bond market.
method Uses a Heath-Jarrow-Morton framework to model corporate credit as a separate economy, linking it to nominal and real economies through synthetic rates.
result Empirically finds a 640 basis point average difference in credit spreads between CDI-indexed and IPCA-indexed segments, stable through market cycles.
This paper calculates risk-dependent centrality of Brazilian stocks, showing rankings vary with external risk and crisis events.
problem Understanding asset rankings in the Brazilian stock market under varying external risks.
method Computed risk-dependent centrality (RDC) for Brazilian stocks traded from 2008 to 2020, analyzing volatility and returns.
result Asset rankings based on RDC vary with external risk and crisis events, with higher volatility in crisis periods.
Speculative bubbles have been occurring periodically in local or global real estate markets and are considered a potential cause of economic crises. In this context, the detection of explosive behaviors in the financial market and the implementation of early warning diagnosis tests are of critical importance. The recen…
We present some indications of inefficiency of the Brazilian stock market based on the existence of strong long-time cross-correlations with foreign markets and indices. Our results show a strong dependence on foreign markets indices as the S\&P 500 and CAC 40, but not to the Shanghai SSE 180, indicating an intricate i…
We propose a diffusion process to describe the global dynamic evolution of credit operations at a national level given observed operations at a subnational level in a sovereign country. Empirical analysis with a unique dataset from Brazilian federate constituents supports the conclusions. Despite the heterogeneity obse…
This work tried to detect the existence of a relationship between the graphic signals - or patterns - observed day by day in the Brazilian stock market and the trends which happen after these signals, within a period of 8 years, for a number of securities. The results obtained from this study show evidence of the exist…
Study predicts customer data sharing in Open Banking and explains key factors.
problem Predicting and explaining customer data sharing in Open Banking environments.
method Hybrid data balancing strategy with ADASYN and NEARMISS, XGBoost models, SHAP, CART.
result 91.39% accuracy for inflow and 91.53% for outflow predictions, revealing influential features.
This paper surveys the evolution of industrial concentration of the Brazilian automotive market as well as its positioning in the worldmarket. Data available by OICA (International Organization of Motor Vehicle Manufacturers) were used to better understand the characteristics of the Brazilian market on the world stage.…
AlphaX uses AI to outperform Brazilian stock market benchmarks.
problem AI strategies often overperform in backtests but underperform in real markets due to lookahead bias.
method Controlled simulations to mitigate lookahead bias, using Value Investing principles.
result AlphaX strategy outperforms major benchmarks and technical indicators.
Deep learning outperforms Black-Scholes in Brazilian Petrobras option pricing.
problem Improving option pricing accuracy for Petrobras stocks.
method Trained deep residual networks using a custom loss function with historical data.
result Deep learning achieved a 64.3% reduction in mean absolute error compared to Black-Scholes.
We apply Geometric Arbitrage Theory to obtain results in mathematical finance for credit markets, which do not need stochastic differential geometry in their formulation. We obtain closed form equations involving default intensities and loss given defaults characterizing the no-free-lunch-with-vanishing-risk condition …
Study finds no significant impact of US sovereign credit rating downgrade on equity market.
problem Impact of US sovereign credit rating downgrade on US equity market.
method Event study methodology using three companies and S&P500 index.
result No significant effects of US sovereign credit rating downgrade on US equity market.
Paper uses AI to predict tail risks in US financial markets.
problem Predicting extreme risks in US financial markets.
method Multivariate multilevel CAViaR model optimized by gradient descent and genetic algorithm.
result Credit market's spillover effect on stock market is greater and longer-lasting.
Efficiently calculates Brazilian stock options with discrete dividends.
problem Accurately pricing Brazilian listed equity options with discrete dividends.
method Uses the fast Laplace transform for high-accuracy computation.
result Efficiently computes option premiums and Greeks with high accuracy.
Model assesses loan profitability under changing credit conditions.
problem Financial institutions face risks of default and prepayment.
method Develops a Random Net Present Value (RNPV) model to evaluate profitability.
result Mean and variance of RNPV calculated at individual and portfolio levels.
Private credit markets have expanded significantly, offering unique lending technology to private equity firms.
problem Understanding the growth and characteristics of private credit markets.
method Systematic survey of academic literature, development of integrated theoretical framework, empirical evidence.
result Private credit markets offer a distinct lending technology with higher spreads over syndicated loans.
Over-the-counter derivatives have contributed significantly to the effectiveness and efficiency of the international financial system but also entail significant counterparty credit risk. Collateralization is one of the most important and widespread credit risk mitigation techniques used in derivatives transactions. Ho…
Revisits Jarrow & Turnbull model for credit and liquidity risk.
problem Modeling credit and liquidity risk in financial markets.
method Uses foreign exchange analogy and partially observable exchange rate.
result Derives tractable term structure models and explicit valuation formulae.
We investigate the Heston model with stochastic volatility and exponential tails as a model for the typical price fluctuations of the Brazilian São Paulo Stock Exchange Index (IBOVESPA). Raw prices are first corrected for inflation and a period spanning 15 years characterized by memoryless returns is chosen for the ana…
Study applies Gai-Kapadia framework to global equity markets to assess systemic risk and default cascades.
problem Assessing systemic risk and default cascades in global equity markets.
method Used Gai-Kapadia framework, 20-asset network, Monte Carlo simulations, and deterministic propagation analysis.
result High clustering among Brazilian assets leads to localized contagion, while developed markets show resilience.
Music genre can be hard to describe: many factors are involved, such as style, music technique, and historical context. Some genres even have overlapping characteristics. Looking for a better understanding of how music genres are related to musical harmonic structures, we gathered data about the music chords for thousa…
A new model uses a Levy-driven process to value credit index swaptions.
problem Valuation of credit index swaptions in financial markets.
method Proposes a Levy-driven Ornstein-Uhlenbeck process to model risk-free rate and default intensities.
result Derives formulas for characteristic function, moments, and stationary distribution.
Paper classifies Brazilian music genres using song lyrics with BLSTM network.
problem Classifying Brazilian music genres from lyrics.
method Used BLSTM network combined with SVM, Random Forest, and word embeddings.
result BLSTM outperforms other models with an F1-score of 0.48.
This work models GHG offset credit markets to find optimal strategies for market participants.
problem Optimizing GHG offset credit markets to reduce emissions and penalize excess emissions.
method Characterized optimal behavior in single-player and two-player GHG offset credit markets using optimal stopping and control problems, and mixed-Nash equilibria.
result Market participants benefit from optimal OC trading and generation, highlighting the importance of acting optimally.
We present a quantitative study of the markets and models evolution across the credit crunch crisis. In particular, we focus on the fixed income market and we analyze the most relevant empirical evidences regarding the divergences between Libor and OIS rates, the explosion of Basis Swaps spreads, and the diffusion of c…
The validity of the Efficient Market Hypothesis has been under severe scrutiny since several decades. However, the evidence against it is not conclusive. Artificial Neural Networks provide a model-free means to analize the prediction power of past returns on current returns. This chapter analizes the predictability in …
We give a comprehensive review of credit term structure modeling methodologies. The conventional approach to modeling credit term structure is summarized and shown to be equivalent to a particular type of the reduced form credit risk model, the fractional recovery of market value approach. We argue that the corporate p…
We detect the backbone of the weighted bipartite network of the Japanese credit market relationships. The backbone is detected by adapting a general method used in the investigation of weighted networks. With this approach we detect a backbone that is statistically validated against a null hypothesis of uniform diversi…
The market practice of extrapolating different term structures from different instruments lacks a rigorous justification in terms of cash flows structure and market observables. In this paper, we integrate our previous consistent theory for pricing under credit, collateral and funding risks into term structure modellin…
This paper examines the possibility of using derivative-implied risk premia to explain stock returns. The rapid development of derivative markets has led to the possibility of trading various kinds of risks, such as credit and interest rate risk, separately from each other. This paper uses credit default swaps and equi…
Through a long-period analysis of the inter-temporal relations between the French markets for credit default swaps (CDS), shares and bonds between 2001 and 2008, this article shows how a financial innovation like CDS could heighten financial instability. After describing the operating principles of credit derivatives i…
We use the correlation matrix of stocks returns in order to create maps of the São Paulo Stock Exchange (BM&F-Bovespa), Brazil's main stock exchange. The data reffer to the year 2010, and the correlations between stock returns lead to the construction of a minimum spanning tree and of asset graphs with a variety of thr…
We developed a strategic of optimal portfolio based on information theory and Tsallis statistics. The growth rate of a stock market is defined by using q-deformed functions and we find that the wealth after n days with the optimal portfolio is given by a q-exponential function. In this context, the asymptotic optim…
Study shows how to better estimate credit provisions and economic capital.
problem Estimating credit provisions and economic capital accurately.
method Using supermodularity ordering properties and elliptically distributed latent factors.
result Convex risk measures of credit losses are nondecreasing w.r.t. various covariances.
Study extends Gai-Kapadia framework to assess systemic risk in global equity markets.
problem Systemic risk and default cascades in global equity markets.
method Network analysis, threshold filtering, Monte Carlo simulations, tail risk assessment.
result System exhibits strong global resilience with negligible probability of large-scale failure.
In this work we derive an approximated no-arbitrage market valuation formula for Constant Maturity Credit Default Swaps (CMCDS). We move from the CDS options market model in Brigo (2004), and derive a formula for CMCDS that is the analogous of the formula for constant maturity swaps in the default free swap market unde…
Study examines spillovers between BRICS and U.S. staple grain futures markets.
problem Contemporaneous and lagged spillover effects in BRICS staple grain futures markets and their linkages with U.S. markets.
method Examines contemporaneous and lagged spillover effects using econometric models.
result Contemporaneous spillovers dominate, and net spillovers are driven by lagged connectedness. Systemic risk is lower in intra-BRICS markets compared to those including the U.S.
Hybrid model uses TOPSIS, EMD, and ELM for stock selection.
problem Difficult to predict stock market due to political and economic factors.
method Combines TOPSIS, EMD, and ELM for stock selection.
result Hybrid model increases profit percentage compared to random selection.
Many new models for measuring financial contagion have been presented recently. While these models have not been specified for investment funds directly, there are many similarities that could be explored to extend the models. In this work we explore ideas developed about financial contagion to create a network of inve…
This paper presents a novel adaptive-filter approach for predicting assets on the stock markets. Concepts are introduced here, which allow understanding this method and computing of the corresponding forecast. This approach is applied, as an example, through the prediction over the actual valuation of the PETR3 shares …
Paper proposes a framework for precise daily default risk prediction of Chinese credit bonds.
problem Inadequate and inaccurate bond information disclosure creates risk of default for investors.
method Framework includes summarizing factors impacting defaults, constructing a risk index system, and using ConvLSTM neural network for prediction.
result The model provides more responsive and accurate daily default risk predictions than authoritative ratings.
Optimal credit and consumption strategies in a switching market with default contagion.
problem Optimal portfolio and consumption decisions in a credit market with default contagion.
method Cobb-Douglas utility, recursive ODE system, backward solution from all-default state.
result Existence and uniqueness of optimal feedback controls, verification theorem.
New measure predicts Dutch housing market downturns.
problem Understanding causes of Dutch housing boom and bust.
method Modelled household lending capacity using bank formulas.
result New measure outperforms traditional measures in forecasting housing prices.
Paper introduces Cycles Protocol to integrate trade credit into market clearing.
problem Liquidity embedded in trade credit outside formal settlement infrastructures.
method Distributed, multilateral clearing mechanism based on double-entry accounting.
result Cycles Protocol maximizes balance sheet compression without redistributing counterparty risk.
This paper presents a new model for pricing financial derivatives subject to collateralization. It allows for collateral arrangements adhering to bankruptcy laws. As such, the model can back out the market price of a collateralized contract. This framework is very useful for valuing outstanding derivatives. Using a uni…
Shorting IG ETFs can hedge bond portfolios during market drawdowns effectively.
problem Managing downside risk in bond portfolios during market crises.
method Constructing three signals (Momentum, Liquidity, Credit) to dynamically hedge short IG positions.
result Dynamic hedge removes when predicted hedged return mean reverts, achieving higher returns and Sortino ratios.
Model estimates LIBOR rates and finds COVID-19 spread spike due to credit risk.
problem Estimating LIBOR rates and understanding the factors affecting them.
method Developed a joint model for various LIBOR-related rates and used it to decompose spreads.
result Credit risk mainly caused the spike in LIBOR-OIS spread during the COVID-19 onset, with equal contributions from credit and funding-liquidity risks on average.
AXI assesses bank funding costs transparently, improving loan pricing and reducing financial risk.
problem Lack of credit-sensitive funding benchmarks after LIBOR transition.
method AXI aggregates unsecured funding transactions across maturities, producing a daily credit spread.
result AXI correlates with financial conditions and market stress, reducing funding risk and offering spread discounts.