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...

We develop a method that o¤ers consistent and computationally e¢ cient credit risk analysis of cash‡ow CDO structures. The proposal makes use of simple portfolio models that admit semi-analytic representations of the loss distribution, combined with detailed and fast calculations of realistic interest and principal cash‡ow waterfalls. We de…ne in this context and study credit tranche risk measu...

Moody's endorses the Basel Committee's proposal to use banks' internal risk assessments to re®ne the Basel Accord's risk weights on bank assets and commitments. External risk assessments, such as Moody's credit ratings, will likely play a supporting role as direct inputs into banks' internal rating systems and as tools for benchmarking and validating those systems. However, the widespread use o...

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...

Analysis of banks’ r isk exposures is important both for management within banks and for bank supervisors. Two major sources of risk for banks are credit risk (the risk that loans will not be repaid) and market risk (the risk of losses arising from adverse movements in market prices). This article focuses on the analysis and management of market risk, an area that has received increasing attent...

We apply to the concrete setup of a bank engaged into bilateral trade portfolios the XVA theoretical framework of Albanese and Crépey (2017), whereby so-called contra-liabilities and cost of capital are charged by the bank to its clients, on top of the fair valuation of counterparty risk, in order to account for the incompleteness of this risk. The transfer of the residual reserve credit capita...