A recently introduced accounting standard, namely the International Financial Reporting Standard 9, requires banks to build provisions based on forward-looking expected loss models. When there is a significant increase in credit risk of a loan, additional provisions must be charged to the income...

This paper considers risks of the investment portfolio, which consist of distributed mortgages and sold European call options. It is assumed that the stream of the credit payments could fall by a jump. The time of the jump is modeled by the exponential distribution. We suggest that the returns...

The aim of the research presented in the article was to analyse the legitimacy of the use of scoring models in banking activities, together with the assessment of the effectiveness of this tool in reducing the high value of the NPL ratio in Polish cooperative banks on the example of banks...

Contingent Convertible (CoCo) is a hybrid debt issued by banks with a specific feature forcing its conversion to equity in the event of the bank’s financial distress. CoCo carries two major risks: the risk of default, which threatens any type of debt instrument, plus the exclusive risk of...

The stability of the financial system is associated with systemic risk factors such as the concurrent default of numerous small obligors. Hence, it is of utmost importance to study the mutual dependence of losses for different creditors in the case of large, overlapping credit portfolios. We...

Credit default swap (CDS) spreads measure the default risk of the reference entity and have been frequently used in recent empirical papers. To provide a rigorous econometrics foundation for empirical CDS analysis, this paper applies the augmented Dickey-Fuller, Phillips-Perron,...

The paper deals with defaultable markets, one of the main research areas of mathematical finance. It proposes a new approach to the theory of such markets using techniques from the calculus of optional stochastic processes on unusual probability spaces, which was not presented before. The paper...

The aggregation of individual risks into total risk using a weighting variable multiplied by two ratio variables representing incidence and intensity is an important task for risk professionals. For example, expected loss (EL) of a loan is the product of exposure at default (EAD), probability of...

How can risk of a company be allocated to its divisions and attributed to risk factors? The Euler principle allows for an economically justified allocation of risk to different divisions. We introduce a method that generalizes the Euler principle to attribute risk to its driving factors when...