This study examines whether systematic default risks affect a cross section of credit risk premiums. Using a structural framework, I derive a theoretical cross-sectional relationship, develop a testable hypothesis, and provide a method to estimate th...
Prior research uses the basic one-period European call-option pricing model to compute default measures for individual firms and concludes that both the size and book-to-market effects are related to default risk. For example, small firms earn higher...
Online consumer credit services play a vital role in the contemporary consumer market. To foster their sustainable development, it is essential to establish and strengthen the relevant risk management mechanism. This study proposes an intelligent man...
In a default event, several obligors simultaneously experience financial difficulty in servicing their debt to the point where the entire market can experience a sudden yet significant jump to a credit default. To help protect lenders against a jump-...
Focusing on the Korean stock market, this paper expands on previous research on the relationship between corporate social responsibility (CSR) and default risk. By using a comprehensive sample of 6977 firm-year observations during the 2011–2021...
The problem of robust optimal investment with exchange rate risk and default risk is studied. We assume that investors are ambiguity averse and they have access not only to the domestic market but also to the foreign market. The corresponding Hamilto...
Euro Area banks have been confronted with unprecedented monetary policy actions by the ECB. Monetary policy may affect bank risk profiles, but the consequences may differ for short-term risk versus long-term or structural bank risk. We empirically in...
This paper analyzes the impact of the instability brought about by the change of directors on the risk of corporate debt default from the perspective of the fusion of old and new directors. Combining Ab-sorptive Capacity Theory and Embeddedness Theor...
In the context of climate change mitigation and adaptation, climate risks stemming from climate transition innovations have garnered significant attention due to concerns about the inadequate climate finance. To shed light on the climate transition r...
We develop the regime-switching default risk (RSDR) model as a generalization of Merton’s default risk (MDR) model. The RSDR model supports an expanded range of asset probability density functions. First, we show using simulation that the RSDR...
We examine the impact of aggregate tax policy uncertainty on firm-level default risk. Due to uncertainties associated with tax policies, firms could have difficulties in determining their optimal debt level and use too much debt to increase their val...
This paper considers the impact of the composition of the top management team on the credit default risk of the firm. Finance theory suggests that shareholders prefer higher levels of risk than the risk-averse executives managing the firm. Increasing...
We study the determinants of borrowers’ default in P2P lending with a new data set consisting of 70,673 loan observations from the Lending Club. Previous research identified a number of default determining variables but did not distinguish betw...
This paper presents a novel risk-based approach for an optimal asset allocation problem with default risk, where a money market account, an ordinary share and a defaultable security are investment opportunities in a general non-Markovian economy inco...
Undoubtedly, it is important to have an empirically effective credit risk rating method for decision-making in the financial industry, business, and even government. In our approach, for each corporate bond (CB) and its issuer, we first propose a cre...
Under the constraints of low-carbon transformation goals, energy enterprises have significantly increased their debt default risk levels due to carbon price fluctuations. This article first analyzes the contagion mechanism of debt default risk among...
This paper analyses the relationships between the traditional bank risk profile indicators and a new measure of banks’ probability of default that considers the Basel regulatory framework. First, based on the SYstemic Model of Bank Originated L...
Small and micro enterprises (SMEs) play a significant role in the market economy. While online lending has brought financial inclusion for SMEs’ borrowers, it has also increased the default risk, which restricts the normative development of onl...
This study selected factors influencing the default risk of micro- and small-sized enterprises (MSEs) from the perspective of both financial and non-financial indicators and constructed an identification model of the influencing factors for the defau...
The prevailing view is that ESG performance contributes to corporate financial stability, particularly regarding long-term sustainability objectives. However, there is a notable lack of critical research exploring its short-term financial effects, es...
The topic of bank default risk in connection with government bailouts has recently attracted a great deal of attention. In this paper, the question of how a bank’s default risk is affected by a distress acquisition is investigated. Specifically...
A significant share of many commercial banks’ portfolios consists of residential mortgage loans provided to individuals and families. This paper examines the default and rational prepayment risk of single-borrower (residential) mortgage loans b...
After the financial crisis, the European Banking Authority (EBA) has established tighter standards around the definition of default (Capital Requirements Regulation CRR Article 178, EBA/GL/2017/16) to increase the degree of comparability and consiste...
As global climate change issues have become increasingly severe, green finance has gained widespread attention from governments and financial institutions as a crucial tool for promoting sustainable development. This paper explores the impact of gree...
Online car-hailing services are becoming a key component of the public transportation system, despite there being some certain risks, especially default risk. Turning to the evolutionary game method, this research constructed an evolutionary game mod...
Peer-to-peer (P2P) network lending is a new mode of internet finance that still holds credit risk as its main risk. According to the internal rating method of the New Basel Accord, in addition to the probability of default, loss given default is also...
Predicting default risk in commercial bills for small and medium-sized enterprises (SMEs) is crucial, as these enterprises represent one of the largest components of a nation’s economic structure, and their financial stability can impact system...
This work aims to illustrate an advanced quantitative methodology for measuring the credit risk of a loan portfolio allowing for diversification effects. Also, this methodology can allocate the credit capital coherently to each counterparty in the po...
Our study examines the relationship between fintech adoption and liquidity management in European banking, investigating how digital transformation influences Basel III liquidity compliance and default risk. Using a sample of 45 European banks from t...
The paper introduces a novel approach to ensemble modeling as a weighted model average technique. The proposed idea is prudent, simple to understand, and easy to implement compared to the Bayesian and frequentist approach. The paper provides both the...
This study investigates the tail dependence structures of sovereign credit default swaps (CDSs) and three global risk factors in BRICS countries using a copula approach, which is popular for capturing the “true” tail dependence based on t...
Estimating the expected capital and its variability is a crucial objective for a non-life insurance company, which enables the firm to develop effective management strategies. Many studies have been devoted to this topic, with simulative approaches b...
In recent years, researchers have been devoted to illustrating the correlation between bankers’ pay contracts and a bank’s risk-taking behavior where corporate governance is concerned, especially throughout the past four decades and by us...
Credit risk refers to the possibility that a borrower fails to meet contractual repayment obligations, posing potential losses to lenders. This study aims to enhance post-loan default prediction in credit risk management by constructing a time-series...
We consider a system where the asset values of firms are correlated with the default thresholds. We first evaluate the probability of default of a single firm under the correlated assets assumptions. This extends Merton’s probability of default of a...
The capital requirements derived from the Basel Accord were issued with the purpose of deploying a transnational regulatory framework. Further regulatory developments on risk measurement is included across several documents published both by the Euro...
Measures of corporate credit risk incorporate compensation for unpredictable future changes in the credit environment and compensation for expected default losses. Since the launch of purchases of government securities and corporate securities by the...
This paper examines the integration of climate risks into structural credit risk models. We focus on applications in housing finance and argue that mortgage defaults due to climate disasters have different statistical features than default due to hou...
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 produc...
This paper considers a hypothetical case in which a bank wants to build a routine climate stress test exercise on residential mortgage loans. The bank has regularly updated the probability of default (PD) and loss given default (LGD) on each resident...
This study aims to combine deep and recurrent neural networks with a reduced-form portfolio model to predict future default rates across economic sectors. The industry-specific forecasts for Italian default rates produced with the proposed approach d...
Climate risk refers to the risks associated with climate change and has already started to impact various sectors of the economy. In this work, we focus on the impact of physical risk on the probability of default for a firm in the agribusiness secto...
This paper considers the valuation of a vulnerable option when underlying stock is subject to liquidity risks. That is, it is assumed that the underlying stock is not perfectly liquid. We establish a framework where the stock price follows the stocha...
This conceptual paper focuses on the relationship between insolvency, capital structure, and value creation. The aim is twofold: to define risk-based capital measures able to absorb the effects of financial distress and avoid corporate default; and t...
Under the Basel II and Basel III agreements, the probability of default (PD) is a key parameter used in calculating expected credit loss (ECL), which is typically defined as: PD × Loss Given Default × Exposure at Default. In practice or in regulatory...
The COVID-19 crisis has revealed the economic vulnerability of various countries and, thus, has instigated the systematic exploration and forecasting of sovereign default risks. Multivariate statistical and stochastic process-based sovereign default...
This study, within the framework of uncertainty theory, employs an uncertain differential equation with jumps to model the asset value process of a company, establishing a structured model of uncertain credit risk that incorporates jumps. This model...
In this paper, we propose an enhanced model for pricing vulnerable options. Specifically, our model assumes that parameters such as interest rates, jump intensity, and asset value volatility are governed by an observable continuous-time finite-state...
This study analyzes the term structures of sovereign quanto credit default swap (CDS) spreads and currency options, which are driven by anticipated currency depreciation risk following sovereign credit default (Twin Ds). We develop consistent pricing...
Chonsei, a Korean housing lease system, enables landlords to acquire direct housing purchase funds without mortgages and offers tenants a cost-effective rental option. However, public concerns have arisen about potential landlord defaults, causing fi...
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