Corporate credit risk counter-cyclical interdependence: A systematic analysis of cross-border and cross-sector correlation dynamics

This study proposes a new Markov switching process with clustering eects. In this approach, a hidden Markov chain with a nite number of states modulates the parameters of a self-excited jump process combined to a geometric Brownian motion. Each regime corresponds to a particular economic cycle determining the expected return, the diusion coecient and the long-run frequency of clustered jumps. We study rst the theoretical properties of this process and we propose a sequential Monte-Carlo method to lter the hidden state variables. We next develop a Markov Chain Monte-Carlo procedure to t the model to the S&P 500. Finally, we analyse the impact of such a jump clustering on implied volatilities of European options.

A switching self-exciting jump diffusion process for stock prices

In recent times, fractional calculus has gained popularity in various types of engineering applications. Very often, the mathematical model describing a given phenomenon consists of a differential equation with a fractional derivative. As numerous studies present, the use of the fractional derivative instead of the classical derivative allows for more accurate modeling of some processes. A numerical solution of anomalous heat conduction equation with Riemann-Liouville fractional derivative over space is presented in this paper. First, a differential scheme is provided to solve the direct problem. Then, the inverse problem is considered, which consists in identifying model parameters such as: thermal conductivity, order of derivative and heat transfer. Data on the basis of which the inverse problem is solved are the temperature values on the right boundary of the considered space. To solve the problem a functional describing the error of the solution is created. By determining the minimum of this functional, unknown parameters of the model are identified. In order to find a solution, selected heuristic algorithms are presented and compared. The following meta-heuristic algorithms are described and used in the paper: Ant Colony Optimization (ACO) for continous function, Butterfly Optimization Algorithm (BOA), Dynamic Butterfly Optimization Algorithm (DBOA) and Aquila Optimize (AO). The accuracy of the presented algorithms is illustrated by examples.

/pdf/comparison-of-heuristic-algorithms-in-identification-of-11flvfsf.pdf

Comparison of Heuristic Algorithms in Identification of Parameters of Anomalous Diffusion Model Based on Measurements from Sensors

Internal or external control? How to respond to credit risk contagion in complex enterprises network

Abstract This study investigates and uses multi-kernel Hawkes models to describe a high-frequency mid-price process. Each kernel represents a different responsive speed of market participants. Using the conditional Hessian, we examine whether the numerical optimizer effectively finds the global maximum of the log-likelihood function under complicated modeling. Empirical studies that use stock prices in the US equity market show the existence of multi-kernels classified as ultra-high-frequency (UHF), very-high-frequency (VHF), and high-frequency (HF). We estimate the conditional expectations of arrival times and the degree of contribution to the high-frequency activities for each kernel.

/pdf/multi-kernel-property-in-high-frequency-price-dynamics-under-351kgaro.pdf

John John Ketelbuters

Papers

CDS pricing with fractional Hawkes processes

Time-consistent evaluation of credit risk with contagion