The aim of this study was to analyze the relationship between credit default swaps and net portfolio investments. Since series remained stationary at varied levels in study, ARDL limit test approach employed. In analysis, 10 years periodical data from 2010 2020 were compared. During implementation test, it agreed add a dummy variable model for months 2018M4 2020M3 upon analysis CUSUM CUSUM2 gra...

We extend the Vasiček loan portfolio model to a setting where liabilities fluctuate randomly and asset values may be subject to systemic jump risk. We derive the probability distribution of the percentage loss of a uniform portfolio and analyze its properties. We find that the impact of liability risk is ambiguous and depends on the correlation between the continuous aggregate factor and the as...

We introduce an equity-credit portfolio framework taking into account the structural interaction of market and credit risk, along with their systemic dependencies. We derive an explicit expression for the optimal investment strategy in stocks and credit default swaps (CDSs). We exploit its representation structure and analyze the mechanisms driving the optimal investment decisions. The transmis...

A typical shortcoming of most current credit portfolio models is the lack of a stochastic modeling of risk factors, such as interest rates or credit spreads, during the revaluation process at the risk horizon. Within the simple credit risk model underlying the Internal Ratings-based approach of Basel II with incorporated correlated interest rate risk the effect which results from neglecting the...

Among the ‘reduced form models’ for measuring the credit risk of a bank’s portfolio is CreditRisk+, which provides a closed-form solution for calculating the portfolio loss distribution based on an actuarial approach. The limitations of this model are well known, but they are often misinterpreted as being deeply embedded within the model. Dismantling the mathematical components of the model all...

One of the most significant developments in international credit markets in recent years has been the trade in Collateralized Debt Obligations (CDO), which has enabled financial institutions to repackage the credit risk of an asset portfolio into tranches to be transferred to investors. The present paper evaluates the credit risk of such a portfolio and the related tranches by applying two prom...