Technical paper/Default risk
Covid-19 and the credit cycle
The Covid-19 health crisis has dramatically affected just about every aspect of the economy, including the transition from a record long benign credit cycle to a stressed one, with still uncertain dimensions. This paper seeks to assess the credit climate…
An alternative statistical framework for credit default prediction
This study compares the gradient-boosting model with four other well-known classifiers, namely, a classification and regression tree (CART), logistic regression (LR), multivariate adaptive regression splines (MARS) and a random forest (RF).
Two-factor Black-Karasinski pricing kernel
Analytic formulas for bond prices and forward rates are derived by expanding existing rate models
Interpretability of neural networks: a credit card default model example
Recently developed techniques aimed at answering interpretability issues in neural networks are tested and applied to a retail banking case
On probability of default and its relation to observed default frequency and a common factor
This paper considers a definition of through-the-cycle as independent from an economic state that can result in a time-varying TTC probability of default.
Default cascades and systemic risk on different interbank network topologies
This paper examines the relationship between the topology of interbank networks and their ability to propagate localized, idiosyncratic shocks across the banking sector via banks’ interbank claims on one another.
Reducing margin procyclicality at central counterparties
This paper studies the effect of less procyclical margin models on cleared volumes and risk taking in a stylized CCP.
Forecasting corporate defaults in the German stock market
In this paper, the authors estimate and test several default risk models using new and unique data on corporate defaults in the German stock market.
Credit default prediction using a support vector machine and a probabilistic neural network
In this study, the authors address the fact that the ranking of classifiers varies for different criteria with measures under different circumstances, by proposing the simultaneous application of support vector machine and probabilistic neural network …
Model risk in the Fundamental Review of the Trading Book: the case of the Default Risk Charge
This paper assesses the model risk associated with the copula choice for the calculation of the Default Risk Charge (DRC) measure.
Risk mutualization and financial stability: recovering and resolving a central counterparty
This paper investigates how financial market participants respond to risk mutualization implemented by a CCP using assessments after a large credit loss.
Issuer bias in corporate ratings toward financially constrained firms
This paper considers whether the rating agency attempts to mitigate the feedback effect through its rating actions. Using Moody’s issuer ratings over 1982–2009, the paper shows that firms with greater external financing constraints are less likely to be…
Portfolio credit risk model with extremal dependence of defaults and random recovery
This paper proposes a portfolio credit risk model with random recovery rates.
Goodness-of-fit for discrete-choice models of borrower default
This paper demonstrates that the rank-order tests are unreliable for assessing models to be used to predict probabilities.
Default risk charge: modeling framework for the “Basel” risk measure
This paper presents a comprehensive model framework for DRC that is compliant with the revised Basel regulatory framework.
Default risk of money-market fund portfolios
This paper proposes a semi-analytic approach to quantify the default risk associated with Money-Market Fund (MMF) portfolios.
Cutting Edge introduction: systematic systematic factor models
Credit factor models tend to obscure the economics in favour of tractability – and this puts them at odds with rigorous arbitrage-free martingale pricing methods. To resolve this, quants are looking more closely at what a systematic risk factor actually…
The impossibility of DVA replication
The impossibility of DVA replication
Variable selection in default risk models
Research Papers
Bilateral counterparty risk with application to CDSs
Previous research on credit valuation adjustments (CVAs) with correlation between underlying and counterparty default, including volatilities of both, assumed unilateral default risk. However, the crisis prompted counterparties to ask institutions to…