Cyclicality and Firm-size in Private Firm Defaults

The Basel II/III and CRD-IV Accords reduce capital charges on bank loans to smaller firms by assuming that the default probabilities of smaller firms are less sensitive to macroeconomic cycles. We test this assumption in a default intensity framework using a large sample of bank loans to private Danish firms. We find that controlling only for size, the default probabilities of small firms are, in fact, less cyclical than the default probabilities of large firms. However, accounting for firm characteristics other than size, we find that the default probabilities of small firms are equally cyclical or even more cyclical than the default probabilities of large firms. These results hold using a multiplicative Cox model as well as an additive Aalen model with time-varying coefficients

Random Time Forward Starting Options

We introduce a natural generalization of the forward-starting options, first discussed by M. Rubinstein. The main feature of the contract presented here is that the strike-determination time is not fixed ex-ante, but allowed to be random, usually related to the occurrence of some event, either of financial nature or not. We will call these options {\bf Random Time Forward Starting (RTFS)}. We show that, under an appropriate "martingale preserving" hypothesis, we can exhibit arbitrage free prices, which can be explicitly computed in many classical market models, at least under independence between the random time and the assets' prices. Practical implementations of the pricing methodologies are also provided. Finally a credit value adjustment formula for these OTC options is computed for the unilateral counterparty credit risk.Comment: 19 pages, 1 figur

Calculation of 3D genome structures for comparison of chromosome conformation capture experiments with microscopy: An evaluation of single-cell Hi-C protocols.

Single-cell chromosome conformation capture approaches are revealing the extent of cell-to-cell variability in the organization and packaging of genomes. These single-cell methods, unlike their multi-cell counterparts, allow straightforward computation of realistic chromosome conformations that may be compared and combined with other, independent, techniques to study 3D structure. Here we discuss how single-cell Hi-C and subsequent 3D genome structure determination allows comparison with data from microscopy. We then carry out a systematic evaluation of recently published single-cell Hi-C datasets to establish a computational approach for the evaluation of single-cell Hi-C protocols. We show that the calculation of genome structures provides a useful tool for assessing the quality of single-cell Hi-C data because it requires a self-consistent network of interactions, relating to the underlying 3D conformation, with few errors, as well as sufficient longer-range cis- and trans-chromosomal contacts

Quantitative single-molecule microscopy reveals that CENP-A(Cnp1) deposition occurs during G2 in fission yeast

The inheritance of the histone H3 variant CENP-A in nucleosomes at centromeres following DNA replication is mediated by an epigenetic mechanism. To understand the process of epigenetic inheritance, or propagation of histones and histone variants, as nucleosomes are disassembled and reassembled in living eukaryotic cells, we have explored the feasibility of exploiting photo-activated localization microscopy (PALM). PALM of single molecules in living cells has the potential to reveal new concepts in cell biology, providing insights into stochastic variation in cellular states. However, thus far, its use has been limited to studies in bacteria or to processes occurring near the surface of eukaryotic cells. With PALM, one literally observes and 'counts' individual molecules in cells one-by-one and this allows the recording of images with a resolution higher than that determined by the diffraction of light (the so-called super-resolution microscopy). Here, we investigate the use of different fluorophores and develop procedures to count the centromere-specific histone H3 variant CENP-A(Cnp1) with single-molecule sensitivity in fission yeast (Schizosaccharomyces pombe). The results obtained are validated by and compared with ChIP-seq analyses. Using this approach, CENP-A(Cnp1) levels at fission yeast (S. pombe) centromeres were followed as they change during the cell cycle. Our measurements show that CENP-A(Cnp1) is deposited solely during the G2 phase of the cell cycle

Statistical-mechanical lattice models for protein-DNA binding in chromatin

Statistical-mechanical lattice models for protein-DNA binding are well established as a method to describe complex ligand binding equilibriums measured in vitro with purified DNA and protein components. Recently, a new field of applications has opened up for this approach since it has become possible to experimentally quantify genome-wide protein occupancies in relation to the DNA sequence. In particular, the organization of the eukaryotic genome by histone proteins into a nucleoprotein complex termed chromatin has been recognized as a key parameter that controls the access of transcription factors to the DNA sequence. New approaches have to be developed to derive statistical mechanical lattice descriptions of chromatin-associated protein-DNA interactions. Here, we present the theoretical framework for lattice models of histone-DNA interactions in chromatin and investigate the (competitive) DNA binding of other chromosomal proteins and transcription factors. The results have a number of applications for quantitative models for the regulation of gene expression.Comment: 19 pages, 7 figures, accepted author manuscript, to appear in J. Phys.: Cond. Mat

Modelling stochastic bivariate mortality

Stochastic mortality, i.e. modelling death arrival via a jump process with stochastic intensity, is gaining increasing reputation as a way to represent mortality risk. This paper represents a first attempt to model the mortality risk of couples of individuals, according to the stochastic intensity approach. On the theoretical side, we extend to couples the Cox processes set up, i.e. the idea that mortality is driven by a jump process whose intensity is itself a stochastic process, proper of a particular generation within each gender. Dependence between the survival times of the members of a couple is captured by an Archimedean copula. On the calibration side, we fit the joint survival function by calibrating separately the (analytical) copula and the (analytical) margins. First, we select the best fit copula according to the methodology of Wang and Wells (2000) for censored data. Then, we provide a sample-based calibration for the intensity, using a time-homogeneous, non mean-reverting, affine process: this gives the analytical marginal survival functions. Coupling the best fit copula with the calibrated margins we obtain, on a sample generation, a joint survival function which incorporates the stochastic nature of mortality improvements and is far from representing independency.On the contrary, since the best fit copula turns out to be a Nelsen one, dependency is increasing with age and long-term dependence exists

Necklace-Cloverleaf Transition in Associating RNA-like Diblock Copolymers

We consider a ${\rm A}_m{\rm B}_n$ diblock copolymer, whose links are capable of forming local reversible bonds with each other. We assume that the resulting structure of the bonds is RNA--like, i.e. topologically isomorphic to a tree. We show that, depending on the relative strengths of A--A, A--B and B--B contacts, such a polymer can be in one of two different states. Namely, if a self--association is preferable (i.e., A--A and B--B bonds are comparatively stronger than A--B contacts) then the polymer forms a typical randomly branched cloverleaf structure. On the contrary, if alternating association is preferable (i.e. A--B bonds are stronger than A--A and B--B contacts) then the polymer tends to form a generally linear necklace structure (with, probably, some rear side branches and loops, which do not influence the overall characteristics of the chain). The transition between cloverleaf and necklace states is studied in details and it is shown that it is a 2nd order phase transition.Comment: 17 pages, 9 figure

Additive Intensity Regression Models in Corporate Default Analysis

We consider additive intensity (Aalen) models as an alternative to the multiplicative intensity (Cox) models for analyzing the default risk of a sample of rated, nonfinancial U.S. firms. The setting allows for estimating and testing the significance of time-varying effects. We use a variety of model checking techniques to identify misspecifications. In our final model, we find evidence of time-variation in the effects of distance-to-default and short-to-long term debt. Also we identify interactions between distance-to-default and other covariates, and the quick ratio covariate is significant. None of our macroeconomic covariates are significant

A remark on the three approaches to 2D Quantum gravity

The one-matrix model is considered. The generating function of the correlation numbers is defined in such a way that this function coincide with the generating function of the Liouville gravity. Using the Kontsevich theorem we explain that this generating function is an analytic continuation of the generating function of the Topological gravity. We check the topological recursion relations for the correlation functions in the $p$-critical Matrix model.Comment: 11 pages. Title changed, presentation improve

Derivatives and Credit Contagion in Interconnected Networks

The importance of adequately modeling credit risk has once again been highlighted in the recent financial crisis. Defaults tend to cluster around times of economic stress due to poor macro-economic conditions, {\em but also} by directly triggering each other through contagion. Although credit default swaps have radically altered the dynamics of contagion for more than a decade, models quantifying their impact on systemic risk are still missing. Here, we examine contagion through credit default swaps in a stylized economic network of corporates and financial institutions. We analyse such a system using a stochastic setting, which allows us to exploit limit theorems to exactly solve the contagion dynamics for the entire system. Our analysis shows that, by creating additional contagion channels, CDS can actually lead to greater instability of the entire network in times of economic stress. This is particularly pronounced when CDS are used by banks to expand their loan books (arguing that CDS would offload the additional risks from their balance sheets). Thus, even with complete hedging through CDS, a significant loan book expansion can lead to considerably enhanced probabilities for the occurrence of very large losses and very high default rates in the system. Our approach adds a new dimension to research on credit contagion, and could feed into a rational underpinning of an improved regulatory framework for credit derivatives.Comment: 26 pages, 7 multi-part figure