arXiv · arXiv q-fin · 2014
After the release of the final accounting standards for impairment in July 2014 by the IASB, banks will face the next significant methodological challenge after Basel 2. In this paper, first methodological thoughts are presented, and ways how to approach underlying questions are proposed. It starts with a detailed discussion of the structural conservatism in the final standard. The exposure value iACV(c) (idealized A…
Wolfgang Reitgruber
arXiv · arXiv q-fin · 2026
A physically backed leveraged event position requires real credit: if collateral C receives leverage L, the protocol supplies (L-1)C and uses the combined amount to acquire recognized event exposure. This paper develops a venue-agnostic on-chain credit architecture for that capital layer and an endogenous model of its capital market. It separates traders, Senior Credit LPs, market makers, liquidators, and Liquidation…
Maksym Nechepurenko
arXiv · arXiv q-fin · 2024
A novel procedure is presented for finding the true but latent endpoints within the repayment histories of individual loans. The monthly observations beyond these true endpoints are false, largely due to operational failures that delay account closure, thereby corrupting some loans. Detecting these false observations is difficult at scale since each affected loan history might have a different sequence of trailing ze…
Arno Botha, Tanja Verster, Roelinde Bester
arXiv · arXiv q-fin · 2018
A Markov-chain model is developed for the purpose estimation of the cure rate of non-performing loans. The technique is performed collectively, on portfolios and it can be applicable in the process of calculation of credit impairment. It is efficient in terms of data manipulation costs which makes it accessible even to smaller financial institutions. In addition, several other applications to portfolio optimization a…
Vilislav Boutchaktchiev
arXiv · arXiv q-fin · 2014
To mitigate potential contagion from future banking crises, the European Commission recently proposed a framework which would provide for the $\textit{bail-in}$ of bank creditors in the event of failure. In this study, we examine this framework retrospectively in the context of failed European banks during the global financial crisis. Empirical findings suggest that equity and subordinated bond holders would have bee…
Thomas Conlon, John Cotter
arXiv · arXiv q-fin · 2026
Volatility is the language in which finance often describes risk, but it is not the language in which institutions experience risk. Allocators live through drawdowns, liquidity needs, spending rules, rebalance decisions, board oversight, and the interval between a prior high-water mark and full recovery. This paper develops a path-dependent framework for asymmetric volatility management. The arithmetic of recovery is…
Gregory A. Fanous
arXiv · arXiv q-fin · 2026
This paper develops a model to evaluate the viability of blockchain markets as the sole venue for price formation. Blockchains clear at discrete intervals called block time, and transactions are executed sequentially according to priority fees paid by traders who compete for queue position. We show that these features undermine the viability of markets. Paid-priority ordering induces endogenous selection, where only …
Agostino Capponi, Álvaro Cartea, Fayçal Drissi
arXiv · arXiv q-fin · 2025
Climate-related phenomena are increasingly affecting regions worldwide, manifesting as floods, water scarcity, and heat waves, significantly impairing companies' assets and productivity. It is essential for asset managers to quantify the exposure of their portfolios to such risk. To this aim, we develop a framework based on the Vasicek model for credit risk that introduces downward jumps due to climate phenomena in a…
Michele Azzone, Matteo Ghesini, Davide Stocco, Lorenzo Viola
arXiv · arXiv q-fin · 2024
This paper investigates the enhancement of financial time series forecasting with the use of neural networks through supervised autoencoders, aiming to improve investment strategy performance. It specifically examines the impact of noise augmentation and triple barrier labeling on risk-adjusted returns, using the Sharpe and Information Ratios. The study focuses on the S&P 500 index, EUR/USD, and BTC/USD as the traded…
Bartosz Bieganowski, Robert Slepaczuk
arXiv · arXiv q-fin · 2024
This paper investigates the enhancement of financial time series forecasting with the use of neural networks through supervised autoencoders (SAE), to improve investment strategy performance. Using the Sharpe and Information Ratios, it specifically examines the impact of noise augmentation and triple barrier labeling on risk-adjusted returns. The study focuses on Bitcoin, Litecoin, and Ethereum as the traded assets f…
Bartosz Bieganowski, Robert Ślepaczuk
arXiv · arXiv q-fin · 2024
Merger and Acquisition (M&A) activities play a vital role in market consolidation and restructuring. For acquiring companies, M&A serves as a key investment strategy, with one primary goal being to attain complementarities that enhance market power in competitive industries. In addition to intrinsic factors, a M&A behavior of a firm is influenced by the M&A activities of its peers, a phenomenon known as the "peer eff…
Dayu Yang
arXiv · arXiv q-fin · 2024
This paper presents a new type of modern accumulation-based tontine, called the Riccati tontine, named after two Italians: mathematician Jacobo Riccati (b. 1676, d. 1754) and financier Lorenzo di Tonti (b. 1602, d. 1684). The Riccati tontine is yet another way of pooling and sharing longevity risk, but is different from competing designs in two key ways. The first is that in the Riccati tontine, the representative in…
Moshe A. Milevsky, Thomas S. Salisbury
arXiv · arXiv q-fin · 2023
The IFRS 9 accounting standard requires the prediction of credit deterioration in financial instruments, i.e., significant increases in credit risk (SICR). However, the definition of such a SICR-event is inherently ambiguous, given its current reliance on evaluating the change in the estimated probability of default (PD) against some arbitrary threshold. We examine the shortcomings of this PD-comparison approach and …
Arno Botha, Esmerelda Oberholzer, Janette Larney, Riaan de Jongh
arXiv · arXiv q-fin · 2019
We consider an auction market in which market makers fill the order book during a given time period while some other investors send market orders. We define the clearing price of the auction as the price maximizing the exchanged volume at the clearing time according to the supply and demand of each market participants. Then we derive in a semi-explicit form the error made between this clearing price and the efficient…
Paul Jusselin, Thibaut Mastrolia, Mathieu Rosenbaum
arXiv · arXiv q-fin · 2016
This paper investigates the impact of dark pools on price discovery (the efficiency of prices on stock exchanges to aggregate information). Assets are traded in either an exchange or a dark pool, with the dark pool offering better prices but lower execution rates. Informed traders receive noisy and heterogeneous signals about an asset's fundamental. We find that informed traders use dark pools to mitigate their infor…
Linlin Ye
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