In this paper, we study the optimal credit rating system in an economy where agents need to borrow and have incentives to renege on debt repayments. We show that credit exclusion creates soft collateral in the form of a borrower's reputation. Compared with individual lending, bank lending...

The recent global financial crisis reignited concerns over systemic risk in the financial industry as a new type of systemic risk emerged – the severe loss of asset value due to illiquidity. The crisis has sparked a large body of research and has led to a number of new quantitative indicators...

Efforts to control bank risk address the wrong problem in the wrong way. They presume that the financial crisis was caused by CEOs who failed to supervise risk-taking employees. The responses focus on executive pay, believing that executives will bring non-executives into line — using...

The reform program outlined by regulators and supervisors after the financial crisis implicitly aims to create a new model for banks, one where they are small(er), simple(r) and separable. The drive toward “separability” threatens to diminish the scale and scope economies that global banks...

This paper presents a Least Square Monte Carlo approach for accurately calculating credit value adjustment (CVA). In contrast to previous studies, the model relies on the probability distribution of a default time/jump rather than the default time itself, as the default time is usually...

In the first eight months of 2018 retail bank deposits turned out to be the primary source of expanding the resource base of the Russian banking sector. Retail deposits, however, posted almost the slowest dynamics over a longterm period of monitoring. This is what restricts opportunities of the...

The dependency of the individual default behavior of a firm on the state of the credit cycle is widely implemented in credit portfolio models and ultimately reflected in the Basel II one-factor model determining capital requirements. Despite this, macroeconomic variables able to represent this...

In this PowerPoint presentation we give an overview of yield curves, show how they are modelled and calibrated and give a brief overview of LIBOR reform.Firstly we explain how to calibrate curves to imply forward rates & discount factors. Secondly, we outline the interpolation, optimization and...

In H1 2020, Russian banks notably increased the volume of corporate lending. This was facilitated by an increase in demand for borrowed funds from enterprises due to a drop in revenue; regulatory measures of the Central Bank that stimulate soft lending; a drop in interest rates as a result of...

We investigate the trade-off between incentive provision and inefficient rollover freezes for a firm financed with staggered short-term debt. First, debt maturity that is too short-term is inefficient, even with incentive provision. The optimal maturity is an interior solution that avoids...