Financial institutes have to be in a position to describe and to analyze the networks of obligors in their credit portfolios. If one obligor defaults who is numerously connected with other obligors in the portfolio there can be effects of credit contagion. We suggest a graph-based modeling of...

We introduce the technique of worst case search to macro stress testing. Among the macroeconomic scenarios satisfying some plausibility constraint we determine the worst case scenario which causes the most harmful loss in loan portfolios. This method has three advantages over traditional macro...

In this paper we separate the total stock return into its continuous and jump component to test whether stock return predictability should be attributed to omitted risk factors or behavioral finance theories. We extend results from the US market to the Spanish stock market, which, despite being...

We describe a method to improve credit portfolio models based on the Merton model by adding to the underlying distributions forward-looking tails deducted through the Bayesian Networks technology. Given the forward-looking stance of the approach, its results give a better quanti ed picture of...

We present a class of flexible and tractable static factor models for the term structure of joint default probabilities, the factor copula models. These high-dimensional models remain parsimonious with pair-copula constructions, and nest many standard models as special cases. The loss...

Credit risk transition probabilities between aggregate portfolio classes constitute a very useful tool when individual transition data are not available. Jones (2005) estimates Markovian Credit Transition Matrices using an adjusted least squares method. Given the arguments of Judge and Takayama...

We examine the effects on a financial network of clearing all contracts though a central node (CN) thereby transforming the original network into a star-shaped one. The CN is capitalized with external equity and a guaranty fund. We introduce a structural systemic risk measure that captures the...

Credit risk assessment usually is a complex process which consists of many successive steps and numerous criteria. Selection of good customers and rejection of potentially bad ones is vital as it directly and significantly affects the quality of bank's credit portfolio. Also, ordering the...

The statistical techniques which cover the process of modeling and evaluating consumer credit risk have become widely accepted instruments in risk management. In contrast, we find only few and vague statements on how to define the default event, i. e. on the concrete circumstances that lead to...