arXiv · arXiv q-fin · 2016
Assessing the stability of economic systems is a fundamental research focus in economics, that has become increasingly interdisciplinary in the currently troubled economic situation. In particular, much attention has been devoted to the interbank lending market as an important diffusion channel for financial distress during the recent crisis. In this work we study the stability of the interbank market to exogenous sh…
Matteo Serri, Guido Caldarelli, Giulio Cimini
arXiv · arXiv q-fin · 2016
We introduce a dynamic optimization framework to analyze optimal portfolio allocations within an information driven contagious distress model. The investor allocates his wealth across several stocks whose growth rates and distress intensities are driven by a hidden Markov chain, and also influenced by the distress state of the economy. We show that the optimal investment strategies depend on the gradient of value fun…
Lijun Bo, Agostino Capponi
arXiv · arXiv q-fin · 2012
The European sovereign debt crisis has impaired many European banks. The distress on the European banks may transmit worldwide, and result in a large-scale knock-on default of financial institutions. This study presents a computer simulation model to analyze the risk of insolvency of banks and defaults in a bank credit network. Simulation experiments reproduce the knock-on default, and quantify the impact which is im…
Yoshiharu Maeno, Satoshi Morinaga, Hirokazu Matsushima, Kenichi Amagai
OpenAlex · Review of Financial Studies · 2022 · cites 55
Abstract Two intermediary-based factors—a corporate bond dealer inventory measure and a broad intermediary distress measure—explain more than 40$\%$ of the puzzling common variation in credit spread changes beyond canonical structural factors. A simple intermediary-based model with partial market segmentation accounts for intermediary factors’ explanatory power and delivers three further implications with empirical s…
Zhiguo He, Paymon Khorrami, Zhaogang Song
arXiv · arXiv · 2019
We discuss a simple, exactly solvable model of stochastic stock dynamics that incorporates regime switching between healthy and distressed regimes. Using this model, which is analytically tractable, we discuss a way of extracting expected returns for stocks from realized CDS spreads, essentially, the CDS market sentiment about future stock returns. This alpha/signal could be useful in a cross-sectional (statistical a…
Zura Kakushadze
arXiv · arXiv · 2025
We present the first application of federated learning (FL) to the U.S. National Financial Capability Study, introducing an interpretable framework for predicting consumer financial distress across all 50 states and the District of Columbia without centralizing sensitive data. Our cross-silo FL setup treats each state as a distinct data silo, simulating real-world governance in nationwide financial systems. Unlike pr…
Lorenzo Carta, Fernando Spadea, Oshani Seneviratne
arXiv · arXiv · 2016
While many models are purposed for detecting the occurrence of significant events in financial systems, the task of providing qualitative detail on the developments is not usually as well automated. We present a deep learning approach for detecting relevant discussion in text and extracting natural language descriptions of events. Supervised by only a small set of event information, comprising entity names and dates,…
Samuel Rönnqvist, Peter Sarlin
arXiv · arXiv q-fin · 2016
Financial contagion from liquidity shocks has being recently ascribed as a prominent driver of systemic risk in interbank lending markets. Building on standard compartment models used in epidemics, in this work we develop an EDB (Exposed-Distressed-Bankrupted) model for the dynamics of liquidity shocks reverberation between banks, and validate it on electronic market for interbank deposits data. We show that the inte…
Giuseppe Brandi, Riccardo Di Clemente, Giulio Cimini
arXiv · arXiv q-fin · 2019
This book, which is in Spanish, provides detailed descriptions, including over 550 mathematical formulas, for over 150 trading strategies across a host of asset classes (and trading styles). This includes stocks, options, fixed income, futures, ETFs, indexes, commodities, foreign exchange, convertibles, structured assets, volatility (as an asset class), real estate, distressed assets, cash, cryptocurrencies, miscella…
Zura Kakushadze, Juan Andrés Serur
arXiv · arXiv q-fin · 2016
Credit and liquidity risks represent main channels of financial contagion for interbank lending markets. On one hand, banks face potential losses whenever their counterparties are under distress and thus unable to fulfill their obligations. On the other hand, solvency constraints may force banks to recover lost fundings by selling their illiquid assets, resulting in effective losses in the presence of fire sales - th…
Giulio Cimini, Matteo Serri
arXiv · arXiv q-fin · 2010
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 equity options to determine risk premia which are then used to form portfolios that are regressed agains…
Florian Steiger
arXiv · arXiv · 2022
Financial markets have evolved over centuries, and exchanges have converged to rely on the order book mechanism for market making. Latency on the blockchain, however, has prevented decentralized exchanges (DEXes) from utilizing the order book mechanism and instead gave rise to the development of market designs that are better suited to a blockchain. Although the first widely popularized DEX, Uniswap V2, stood out thr…
Lioba Heimbach, Eric Schertenleib, Roger Wattenhofer
arXiv · arXiv q-fin · 2023
This paper proposes analytic forms of portfolio CoVaR and CoCVaR on the normal tempered stable market model. Since CoCVaR captures the relative risk of the portfolio with respect to a benchmark return, we apply it to the relative portfolio optimization. Moreover, we derive analytic forms for the marginal contribution to CoVaR and the marginal contribution to CoCVaR. We discuss the Monte-Carlo simulation method to cal…
Young Shin Kim
arXiv · arXiv · 2023
This paper uses the concepts of entropy to study the regularity/irregularity of the returns from the Indian Foreign exchange (forex) markets. The Approximate Entropy and Sample Entropy statistics which measure the level of repeatability in the data are used to quantify the randomness in the forex returns from the time period 2006 to 2021. The main objective of the research is to see how the randomness of the foreign …
Radhika Prosad Datta
arXiv · arXiv · 2012
The events of the last few years revealed an acute need for tools to systematically model and analyze large financial networks. Many applications of such tools include the forecasting of systemic failures and analyzing probable effects of economic policy decisions. We consider optimizing the amount and structure of a bailout in a borrower-lender network: Given a fixed amount of cash to be injected into the system, ho…
Zhang Li, Ilya Pollak
OpenAlex · The Journal of Finance · 2001 · cites 2189
ABSTRACT Using dealer's quotes and transactions prices on straight industrial bonds, we investigate the determinants of credit spread changes. Variables that should in theory determine credit spread changes have rather limited explanatory power. Further, the residuals from this regression are highly cross‐correlated, and principal components analysis implies they are mostly driven by a single common factor. Although …
Pierre Collin-Dufresn, Robert S. Goldstein, J. Spencer Martin
OpenAlex · The Journal of Finance · 2001 · cites 824
ABSTRACT Most structural models of default preclude the firm from altering its capital structure. In practice, firms adjust outstanding debt levels in response to changes in firm value, thus generating mean‐reverting leverage ratios. We propose a structural model of default with stochastic interest rates that captures this mean reversion. Our model generates credit spreads that are larger for low‐leverage firms, and …
Pierre Collin‐Dufresne, Robert S. Goldstein
arXiv · arXiv · 2016
In this paper, we search whether the Benford's law is applicable to monitor daily changes in sovereign Credit Default Swaps (CDS) quotes, which are acknowledged to be complex systems of economic content. This test is of paramount importance since the CDS of a country proxy its health and probability to default, being associated to an insurance against the event of its default. We fit the Benford's law to the daily ch…
Marcel Ausloos, Rosella Castellano, Roy Cerqueti