A locally-built, LLM-digested index of recent arXiv papers in quant finance, geometry/topology, and statistical ML — keyword search served straight from SQLite on this machine.
Paper simplifies default process modeling and credit valuation.
Researchers develop a new method to value securities with uncertain default or death times.
Optimal credit and consumption strategies in a switching market with default contagion.
The paper analyzes corporate security prices in incomplete credit risk models.
We consider the problem of maximizing expected utility for a power investor who can allocate his wealth in a stock, a defaultable security, and a money market account. The dynamics of these security prices are governed by geometric Brownian motions modulated by a hidden continuous time finite state Markov chain. We red…
In this paper incomplete-information models are developed for the pricing of securities in a stochastic interest rate setting. In particular we consider credit-risky assets that may include random recovery upon default. The market filtration is generated by a collection of information processes associated with economic…
While defaults are rare events, losses can be substantial even for credit portfolios with a large number of contracts. Therefore, not only a good evaluation of the probability of default is crucial, but also the severity of losses needs to be estimated. The recovery rate is often modeled independently with regard to th…
Backward SDEs help price XVA for OTC derivatives.
We provide representations of solutions to terminal value problems of inhomogeneous Black-Scholes equations and studied such general properties as min-max estimates, gradient estimates, monotonicity and convexity of the solutions with respect to the stock price variable, which are important for financial security prici…
According to theoretical models of valuing risky corporate securities, risk of default is primary component in overall yield spread. However, sizable empirical literature considers it otherwise by giving more importance to non-default risk factors. Current study empirically attempts to provide relative solution to this…
Study optimal reinsurance and investment for insurers in defaultable markets.
We consider a portfolio optimization problem in a defaultable market with finitely-many economical regimes, where the investor can dynamically allocate her wealth among a defaultable bond, a stock, and a money market account. The market coefficients are assumed to depend on the market regime in place, which is modeled …
The present paper introduces a jump-diffusion extension of the classical diffusion default intensity model by means of subordination in the sense of Bochner. We start from the bi-variate process of a diffusion state variable driving default intensity and a default indicator process and time change it wi…
The study calculates securities lending haircuts and indemnification costs.
We prove a version of First Fundamental Theorem of Asset Pricing under transaction costs for discrete-time markets with dividend-paying securities. Specifically, we show that the no-arbitrage condition under the efficient friction assumption is equivalent to the existence of a risk-neutral measure. We derive dual repre…
This essay quantifies convexities in incomplete markets using entropy, adjusting prices for risk and incompleteness.
Study on price formation in financial markets with a single default event.
Minimax defense improves neural network security against gradient-based attacks.
This study quantifies systemic risk from overlapping portfolios in the Mexican financial system.
This econophysics work studies the long-range Ising model of a finite system with spins and the exchange interaction and the external field as a modely for homogeneous credit portfolio of assets with default probability and default correlation . Based on the discussion on the $(J,H)…
Secure sum outperforms homomorphic encryption in collaborative deep learning.
Model shows overnight interbank loans can lead to bank defaults without external shocks.
Cross-border equity and long-term debt securities portfolio investment networks are analysed from 2002 to 2012, covering the 2008 global financial crisis. They serve as network-proxies for measuring the robustness of the global financial system and the interdependence of financial markets, respectively. Two early-warni…
We study capital requirements for bounded financial positions defined as the minimum amount of capital to invest in a chosen eligible asset targeting a pre-specified acceptability test. We allow for general acceptance sets and general eligible assets, including defaultable bonds. Since the payoff of these assets is not…
A control-theoretic model tackles microfinance sustainability issues.
Network-based stress test assesses central counterparty resilience.
Repo pricing model explains haircut and spread dynamics.
Bilateral CVA as currently implement has the counterintuitive effect of profiting from one's own widening CDS spreads, i.e. increased risk of default, in practice. The unified picture of CVA and liquidity introduced by Morini & Prampolini 2010 has contributed to understanding this. However, there are two significant om…
We extend the now classic structural credit modeling approach of Black and Cox to a class of "two-factor" models that unify equity securities such as options written on the stock price, and credit products like bonds and credit default swaps. In our approach, the two sides of the stylized balance sheet of a firm, namel…
The paper identifies inconsistencies in post-crisis derivative pricing methods and derives no-arbitrage expressions.
In this paper, we analyze the diversity of term structure functions (e.g., yield curves, swap curves, credit curves) constructed in a process which complies with some admissible properties: arbitrage-freeness, ability to fit market quotes and a certain degree of smooth- ness. When present values of building instruments…
The paper analyzes debt recycling strategies for mortgage repayment, revealing complex phases of success and failure.
We provide analytical pricing formula of corporate defaultable bond with both expected and unexpected default in the case with stochastic default intensity. In the case with constant short rate and exogenous default recovery using PDE method, we gave some pricing formula of the defaultable bond under the conditions tha…
Modeling contagion effects in credit default risk with macroeconomic impact.
Temporal coarse-graining of latent default paths explains effective correlation in corporate defaults.
We compare observed corporate cumulative default probabilities to those calculated using a stochastic model based on an extension of the work of Black and Cox and find that corporations default as if via diffusive dynamics. The model, based on a contingent-claims analysis of corporate capital structure, is easily calib…
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 cases. In the first case, we treat a portfolio whose assets have uniform default cor…
We develop a dynamic point process model of correlated default timing in a portfolio of firms, and analyze typical default profiles in the limit as the size of the pool grows. In our model, a firm defaults at a stochastic intensity that is influenced by an idiosyncratic risk process, a systematic risk process common to…
The paper tackles uncertainties in corporate default risk predictions.
Temporal aggregation reveals latent default correlation from monthly data.
Extends contagion models to include direct and indirect impacts of defaults on the environment.
The paper shows how to calculate risk-neutral default probabilities from bid and ask CDS quotes.
We propose two structural models for stochastic losses given default which allow to model the credit losses of a portfolio of defaultable financial instruments. The credit losses are integrated into a structural model of default events accounting for correlations between the default events and the associated losses. We…
Paper proposes a framework for precise daily default risk prediction of Chinese credit bonds.
The paper values and hedges EPS products with jumps and default risks.
Investors optimize equity and CDS trading to mitigate default risk.
We develop a finite horizon continuous time market model, where risk averse investors maximize utility from terminal wealth by dynamically investing in a risk-free money market account, a stock written on a default-free dividend process, and a defaultable bond, whose prices are determined via equilibrium. We analyze fi…
We model the term structure of the forward default intensity and the default density by using Lévy random fields, which allow us to consider the credit derivatives with an after-default recovery payment. As applications, we study the pricing of a defaultable bond and represent the pricing kernel as the unique solution …