We put forward a Merton-type multi-factor portfolio model for assessing banks’ contributions to systemic risk. This model accounts for the major drivers of banks’ systemic relevance: size, default risk and correlation of banks’ assets as a proxy for interconnectedness. We measure systemic...

I introduce a novel, hierarchical model of tail dependent asset returns which can be particularly useful for measuring portfolio credit risk within the structural framework. To allow for a stronger dependence within sub-portfolios than between them, I utilise the concept of nested Archimedean...

This paper introduces a multivariate pure-jump Lévy process which allows for skewness and excess kurtosis of single asset returns and for asymptotic tail dependence in the multivariate setting. It is termed Variance Compound Gamma (VCG). The novelty of my approach is that, by applying a...

We propose an algorithm to model contagion in the interbank market via what we term the credit quality channel. In existing models on contagion via interbank credit, external shocks to banks often spread to other banks only in case of a default. In contrast, shocks are transmitted via asset...

The credit valuation adjustment (CVA) of OTC derivatives is an important part of the Basel III credit risk capital requirements and current accounting rules. Its calculation is not an easy task - not only it is necessary to model the future value of the derivative, but also the probability of...

After the outbreak of the financial crisis in 2007-2008 the level of non-performing loans (NPLs) in the economy has generally increased. However, while in some countries this has been a transitory phenomenon, in others it still represents a major threat for economic recovery and financial...

After the short temporary popularity of foreign currency denominated (FXD) loans, during the Great Financial and Economic Recession (2007- 2013), the burden of these loans has become unaffordable for a lot of borrowers in East Central Europe. We have designed a family of simple models to compare...

The paper investigates a decision criterion for structured bonds portfolio choices. The main issue is the application of risk-adjusted indicators as tools to select either the asset portfolio given a structured bond, or the bond structure given an existing coverage asset portfolio. Such an...

We consider the modelling of credit migration risk and the pricing of migration derivatives. This enlarges the traditional setup where credit risk is based on a specificate migration state, i.e. the default one. To construct a Point-in-Time rating migration matrix as underlying value for the...