The credit valuation adjustment (CVA) of OTC derivatives is an important part of the Basel III credit risk capital requirements and current accounting rules. Its calculation is not an easy task - not only it is necessary to model the future value of the derivative, but also the probability of...

Market value of derivatives after crisis requires discounting with interest rates that take into account the credit risk of the involved counterparties of the trade. The increase of credit risk is evidenced by the presence of basis swap spreads. Using one curve to both estimating the forward...

The paper proposes an application of the survival time analysis methodology to estimations of the Loss Given Default (LGD) parameter. The main advantage of the survival analysis approach compared to classical regression methods is that it allows exploiting partial recovery data. The model is...

The Basle II parameter called Loss Given Default (LGD) aims to estimate the expected losses on not yet defaulted accounts in the case of default. Banks firstly need to collect historical recovery data, discount the recovery income and cost cash flow to the time of default, and calculate...

The paper provides an overview of the Exposure at Default (EAD) definition, requirements, and estimation methods as set by the Basel II regulation. A new methodology connected to the intensity of default modeling is proposed. The numerical examples show that various estimation techniques may...

We formulate a bivariate stochastic volatility jump-diffusion model with correlated jumps and volatilities. An MCMC Metropolis-Hastings sampling algorithm is proposed to estimate the model´s parameters and latent state variables (jumps and stochastic volatilities) given observed returns. The...

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In this article we extend the agent-based model of firms’ formation and growth proposed in [4]. In [4] the firms‘ creation, expansion or contraction results from the interaction of heterogeneous utility maximizers. While the original model was able to replicate the power law distribution in...

This paper focuses on the key credit risk parameter–Loss Given Default (LGD). We describe its general properties and determinants with respect to seniority of debt, characteristics of debtors or macroeconomic conditions. Further, we illustrate how the LGD can be extracted from market...

Fair representation of voters in a committee representing different voters’ groups is being broadly discussed during last few years. Assuming we know what the fair representation is, there exists a problem of optimal quota: given a “fair” distribution of voting weights, how to set up...