Papers by Jessica Cariboni
This chapter contains sections titled: Different Tests for Different SettingsWhy Variance?Varianc... more This chapter contains sections titled: Different Tests for Different SettingsWhy Variance?Variance-based Methods. A Brief HistoryInteraction EffectsTotal EffectsHow to Compute the Sensitivity IndicesFAST and Random Balance DesignsPutting the Method to Work: The Infection Dynamics ModelCaveatsExercisesDifferent Tests for Different SettingsWhy Variance?Variance-based Methods. A Brief HistoryInteraction EffectsTotal EffectsHow to Compute the Sensitivity IndicesFAST and Random Balance DesignsPutting the Method to Work: The Infection Dynamics ModelCaveatsExercises
Most structural models for credit pricing assume Geometric Brownian motion to describe the firm a... more Most structural models for credit pricing assume Geometric Brownian motion to describe the firm asset value. However, the underlying lognor- mal distribution does not match empirical distributions, typically skewed and leptokurtic. Moreover, defaults are usually driven by shocks, which are not captured by the continuous paths of Brownian motion. We assume the asset price process is driven by a
Studies in Classification, Data Analysis, and Knowledge Organization, 2015
The latest economic and financial crisis has shown how quickly vulnerabilities on the financial s... more The latest economic and financial crisis has shown how quickly vulnerabilities on the financial side of the economy can turn into a strong deterioration of public accounts, thus highlighting the importance to monitor fiscal risks arising outside the realm of public finances. This is particularly the case for the building up of risks in the banking sector, due to its central role in financial stability. In this spirit, this paper presents banking stress-test scenarios for public debt projections based on SYMBOL, a Monte Carlo micro-simulation model that allows obtaining losses from simulated bank defaults, using actual bank balance-sheet information. The estimated bank losses are used to assess the size of the potential impact on government deficit and gross public debt that feed into a debt projection model, allowing drawing conclusions in terms of projected public debt dynamics. The methodology for the stress tests proposed here has three major advantages. First, it allows distingu...
SSRN Electronic Journal, 2000
The relationship between the risk-neutral measure Q and the actual or real-world measure P, and t... more The relationship between the risk-neutral measure Q and the actual or real-world measure P, and the corresponding credit risk premium, are investigated in this paper. Quantifying and understanding the long-term average risk premium is important for a variety of financial applications and investment decision-making. This study develops an empirical analysis of this relationship, using CDS spreads of European corporates for estimating risk-neutral probabilities, and Moody's historical transition matrices to derive the corresponding actual values. Special attention is given to the recent financial crises and our study allows us to quantify its impact on risk premia. In line with some research based on pre-crisis data, we find that the ratio between the risk-neutral and actual default intensities, which we call the coverage ratio, is a convex and decreasing function of the actual default intensities. We are able to further differentiate between different time-horizons and conclude that current risk premia levels are still above their initial levels and this could indicate a permanent upward shift in risk premia. Finally, we link our results with the concept of Real Economic Value and its role in the bail-out of several European financial institutions.
Taxation and Regulation of the Financial Sector, 2015
A simple methodology first presented by the Bank of England is coupled with the JRC SYMBOL model ... more A simple methodology first presented by the Bank of England is coupled with the JRC SYMBOL model to estimate the macro-economic impact of setting banks Minimum Capital Requirements (MCR) at different levels in a set of EU countries. The proposed methodology allows estimating macro-economic costs and benefits on the basis of two pieces of information: first, how different levels of capitalization modify the probability of a systemic banking crisis (SystemicPD) and, second, the level of recapitalization implied by the introduction of the new Basel III definition of capital and RWA, and the application of various (increased) levels of MCR. Regarding the probability of a systemic banking crisis, the SYMBOL model is employed to estimate the reduction in the SystemicPD that derives from implementing the new Basel III definitions in order to meet the different considered levels of MCR. Recapitalization estimates are obtained combining information on the 2009 levels of capital from publicly...
Reliability Engineering & System Safety, 2009
We introduce a new method for screening inputs in mathematical or computational models with large... more We introduce a new method for screening inputs in mathematical or computational models with large numbers of inputs. The method proposed here represents an improvement over the best available practice for this setting when dealing with models having strong interaction effects. When the sample size is sufficiently high the same design can also be used to obtain accurate quantitative estimates of the variance-based sensitivity measures: the same simulations can be used to obtain estimates of the variance-based measures according to the Sobol' and the Jansen formulas. Results demonstrate that Sobol' is more efficient for the computation of the first-order indices, while Jansen performs better for the computation of the total indices.
Journal of Financial Economic Policy, 2015
Probabilistic Safety Assessment and Management, 2004
Probabilistic Safety Assessment and Management, 2004
Crises and New Realities, 2014
International Journal of Financial Research, 2012
Page 1. Lévy processes and the financial crisis: can we design a more effective deposit protectio... more Page 1. Lévy processes and the financial crisis: can we design a more effective deposit protection? Jessica Cariboni∗, Sara Maccaferriand Wim Schoutens Abstract Lévy processes have been applied in various financial settings ...
Metrika, 2009
This work presents intensity-based credit risk models where the default intensity of the point pr... more This work presents intensity-based credit risk models where the default intensity of the point process is modeled by an Ornstein-Uhlenbeck type process completely driven by jumps. Under this model we compute the default probability over time by linking it to the characteristic function of the integrated intensity process. In case of the Gamma and the Inverse Gaussian Ornstein-Uhlenbeck processes this leads to a closed-form expression for the default probability and to a straightforward estimate of credit default swaps prices. The model is calibrated to a series of realmarket term structures and then used to price a digital default put option. Results are compared with the well known cases of Poisson and CIR dynamics. Possible extensions of the model to the multivariate setting are finally discussed.
Journal of Banking Regulation, 2010
ABSTRACT This article aims to investigate the efficiency of European Deposit Protection Schemes (... more ABSTRACT This article aims to investigate the efficiency of European Deposit Protection Schemes (DPSs) in providing adequate financial protection to depositors and enhancing the stability of the financial sector. Using data provided by European DPSs, the analysis focuses on different aspects of their operation. The intervention procedures in force across European Union (EU) countries are compared, the amount of available funds are analysed by means of different quantitative measures to assess the fund adequacy and the promptness of consumer repayments is investigated using data on historical payouts. It can be concluded that fairly heterogeneous procedures are currently in place in the EU Member States, thus posing the question of whether more harmonised rules are needed to enhance the effectiveness of the DPSs’ role in the financial safety net. The analysis shows that, while under stable market situations, most of the European DPSs would be capable of facing the failure of a non-systemic bank, in a critical period, such as the one that prevailed at the end of 2008, they could encounter problems in adequately fulfilling their consumer protection role. With regard to the time period needed to repay depositors, results highlight that more stringent rules might be advisable from a consumer's perspective.
Journal of Banking Regulation, 2008
... 2 Karlien Vanden Branden, born in 1979, graduated in Mathematics at Katholieke Universiteit L... more ... 2 Karlien Vanden Branden, born in 1979, graduated in Mathematics at Katholieke Universiteit Leuven, Belgium, in 2001. ... The amount of eligible deposits is the sum of all deposits repayable by the guarantee scheme under an MS's national laws before the payout limit is applied. ...
International Journal of Risk Assessment and Management, 2009
ABSTRACT This paper proposes the use of a global sensitivity analysis to evaluate the risk associ... more ABSTRACT This paper proposes the use of a global sensitivity analysis to evaluate the risk associated with a credit portfolio model. The main features of this approach are its ability to assess sensitivities in the presence of non-linearities and to rank the input factors with respect to their relevance for the output variable. The commonly used local sensitivity analysis which is nested in the global model cannot provide this information. We analyze the static and time-varying uncertainties of three key input factors in a latent factor credit risk model, i.e. the multivariate distribution (copula), the default correlation and the default probability. Results show that the importance of the factors strongly depends on the average default probability of the portfolio and the analyzed quantiles of the default distribution. The proposed technique also provides information about trade-offs between the factors, e.g. between the default correlation and the copula.
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Papers by Jessica Cariboni