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Zero-Liquidation loans allow DeFi users to borrow USDC against their ETH holdings, but without the risk of being liquidated in case of LTV shortfalls. This is achieved by giving users the option to repay their loans, either in USDC or through their previously pledged ETH (the concept can be generalized to other currency pairs as well). Liquidity providers, on the other hand side, are compensated with a higher yield f…
We propose a credit risk model for portfolios composed of green and brown loans, extending the ASRF framework via a two-factor copula structure. Systematic risk is modeled using potentially skewed distributions, allowing for asymmetric creditworthiness effects, while idiosyncratic risk remains Gaussian. Under a non-uniform exposure setting, we establish convergence in quadratic mean of the portfolio loss to a limit r…
Loan seasoning and inefficient consumer interest rate refinance behavior are well-known for mortgages. Consumer automobile loans, which are collateralized loans on a rapidly depreciating asset, have attracted less attention, however. We derive a novel large-sample statistical hypothesis test suitable for loans sampled from asset-backed securities to populate a transition matrix between risk bands. We find all current…
Quantum models based on the mathematics of quantum mechanics (QM) have been developed in cognitive sciences, game theory and econophysics. In this work a generalization of credit loans is introduced by using the vector space formalism of QM. Operators for the debt, amortization, interest and periodic installments are defined and its mean values in an arbitrary orthonormal basis of the vectorial space give the corresp…
A stock loan is a contract whereby a stockholder uses shares as collateral to borrow money from a bank or financial institution. In Xia and Zhou (2007), this contract is modeled as a perpetual American option with a time varying strike and analyzed in detail within a risk--neutral framework. In this paper, we extend the valuation of such loans to an incomplete market setting, which takes into account the natural trad…
In this article, we consider the problem of a bank's loan portfolio in the context of liquidity risk, while allowing for the limited liability protection enjoyed by the bank. Accordingly, we construct a novel loan portfolio model with limited liability, while maintaining a threshold level of haircut in the portfolio. For the constructed three-time step loan portfolio, at the initial time, the bank raises capital via …
Lending Protocols (LPs), as blockchain-based lending systems, allow any agents to borrow and lend cryptocurrencies. However, liquidity risks could occur, especially when salient loans are initiated by a particular group of borrowers. This paper proposes measurements of liquidity risks, focusing on both available liquidity and market concentration in LPs. By using Aave as a case study, we find that liquidity risks are…
Recently, a number of structured funds have emerged as public-private partnerships with the intent of promoting investment in renewable energy in emerging markets. These funds seek to attract institutional investors by tranching the asset pool and issuing senior notes with a high credit quality. Financing of renewable energy (RE) projects is achieved via two channels: small RE projects are financed indirectly through…
A model is developed to assess the profitability of loans or mortgages with a specified repayment schedule. Financial institutions face two competing risks: default and prepayment, both influenced by the stochastic evolution of credit market conditions. This study focuses on the Random Net Present Value (RNPV) as a key performance metric. The analysis evaluates the mean and variance of the RNPV at both the individual…
We introduce a novel machine learning model for credit risk by combining tree-boosting with a latent spatio-temporal Gaussian process model accounting for frailty correlation. This allows for modeling non-linearities and interactions among predictor variables in a flexible data-driven manner and for accounting for spatio-temporal variation that is not explained by observable predictor variables. We also show how esti…
We design a system for risk-analyzing and pricing portfolios of non-performing consumer credit loans. The rapid development of credit lending business for consumers heightens the need for trading portfolios formed by overdue loans as a manner of risk transferring. However, the problem is nontrivial technically and related research is absent. We tackle the challenge by building a bottom-up architecture, in which we mo…
This study evaluates the effect of collection policy on portfolio quality of microfinance banks in Adamawa State, Nigeria. Real data were collected from 51 credit officers, then a multi-stage sampling method was used to select a sample of 21 respondents from the population (i.e., 51 credit officers). In addition, we used regression analysis and descriptive statistics to analyze the data collected and to also test our…
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 diversification of loans for banks and firms. Our investigation is done year by year and it covers more tha…
An investor with constant relative risk aversion and an infinite planning horizon trades a risky and a safe asset with constant investment opportunities, in the presence of small transaction costs and a binding exogenous portfolio constraint. We explicitly derive the optimal trading policy, its welfare, and implied trading volume. As an application, we study the problem of selecting a prime broker among alternatives …
Risk management is a prominent issue in peer-to-peer lending. An investor may naturally reduce his risk exposure by diversifying instead of putting all his money on one loan. In that case, an investor may want to minimize the Value-at-Risk (VaR) or Conditional Value-at-Risk (CVaR) of his loan portfolio. We propose a low degree of freedom deep neural network model, DeNN, as well as a high degree of freedom model, DSNN…
A credit rating of AAA asserts near-certainty of repayment. This paper asks whether the pre-crisis information environment could have supported that assertion for structured products. Bayes' theorem implies that any reliability target requires a minimum level of statistical discrimination between instruments that will repay and those that will not. At structured-finance base rates, a four-nines reliability target dem…
The rapid expansion of cross-border e-commerce (CBEC) has created significant opportunities for small- and medium-sized sellers, yet financing remains a critical challenge due to their limited credit histories. Third-party logistics (3PL)-led supply chain finance (SCF) has emerged as a promising solution, leveraging in-transit inventory as collateral. We propose an advanced credit risk management framework tailored f…
Decentralized Finance (DeFi), a financial ecosystem without centralized controlling organization, has introduced a new paradigm for lending and borrowing. However, its capital efficiency remains constrained by the inability to effectively assess the risk associated with each user/wallet. This paper introduces the 'On-Chain Credit Risk Score (OCCR Score) in DeFi', a probabilistic measure designed to quantify the credi…
Leveraged Loan Index — Floating-rate corporate credit sensitive to defaults, spreads, and CLO demand.
CLO Issuance — Structured credit supply that absorbs leveraged loans and shapes spread regimes.
Leveraged Loan Price (Fixed Income).