Using particle system methodologies we study the propagation of financial distress in a network of firms facing credit risk. We investigate the phenomenon of a credit crisis and quantify the losses that a bank may suffer in a large credit portfolio. Applying a large deviation principle we compute the limiting distributions of the system and determine the time evolution of the credit quality ind...

credit decisions are extremely vital for any type of financial institution because it can stimulate huge financial losses generated from defaulters. credit scoring models are decision support systems that take a set of predictor variables as input and provide a score as output and creditors use these models to justify who will get credit and who will not. many different credit scoring models ha...

Financial reorganization under bankruptcy reduces a firm’s debts to a serviceable level through negotiations overseen by courts. Academics have suggested using markets as an alternative to such negotiations, recognizing that equity holders and junior claimants have call options to buy the firm back from senior creditors. This paper further develops this market-based approach when claimants are ...

Here we investigate the existence of credit in a cash-in-advance economy where there are complete markets but for the fact that agents cannot commit to repay their debts. Defectors are banned from the credit market but they can use money balances for saving purposes. Without uncertainty, deflation crowds out credit completely. The equilibrium allocation, however, is efficient if the government ...

This paper sets out to estimate expected lifetime of revolving credit facilities (e.g. credit card products) and is motivated by the introduction of the International Financial Reporting Standard 9 (IFRS 9) and its requirements for loan impairments. The reporting entity is required to estimate lifetime expected credit losses for certain financial instruments. In practice, maximum contractual pe...

The paper discusses frameworks in which the financial sector is at the eye of the storm. In that context, policies that do not repair the damage in the financial sector are, by necessity, second‐best. Actually, aggregate demand policies – emphasized in textbook Keynesian models – may be inferior to heterodox policies that rely on credit targeting. Moreover, based on salient characteristics of m...

Classical models of General Equilibrium Theory, both with complete markets and incomplete markets, assume that all borrowers fully keep their promises. This assumption was heavily criticized as it does not reflect actual financial markets practices. In the Nineties, general equilibrium models have allowed for default. More precisely, borrowers may actually default on future asset returns. When ...

Financial distress prediction is always important for financial institutions in order for them to assess the financial health of enterprises and individuals. Bankruptcy prediction and credit scoring are two important issues in financial distress prediction where various statistical and machine learning techniques have been employed to develop financial prediction models. Since there are no gene...

Credit evaluation is one of the most important and difficult tasks for credit card companies, mortgage companies, banks and other financial institutes. Incorrect credit judgement causes huge financial losses. This work describes the use of an evolutionary-fuzzy system capable of classifying suspicious and non-suspicious credit card transactions. The paper starts with the details of the system u...