On The Timing of Default Losses: When and Why?

At the light of what happened in 2010 and 2011, a lot of European countries founded themselves in a difficult position where all the credit rating agencies were downgrading debt states. Problem of solvency and guarantees on the states' bond were perceived as too risky for a Monetary Union as Europe is. Fear of a contagion from Greece as well was threatening the other countries as Italy, Spain, Portugal and Ireland; while Germany and France asked for a division between risky and riskless bond in order to feel more safe. Our paper gets inspiration by Roch and Uhlig (2011), it refers to the Argentinian case examined by Arellano (2008) and examine possible interventions as monetization or bailout as proposed by Cole and Kehoe (2000). We propose a model in which a state defaults and cannot repay a fraction of the old bond; but contrary to Roch and Uhlig that where considering a one-time cost of default we consider default as an accumulation of losses, perceived as unpaid fractions of the old debts. Our contributions to literature is that default immediately imply that economy faces a bad period and, accumulating losses, government will be worse-off. We studied a function for this accumulation of debt period by period, in order to get an idea of the magnitude of this waste of resources that economy will face when experiences a default. Our thesis is that bailouts just postpone the day of reckoning (Roch, Uhlig); so it's better to default before accumulate a lot of debts. What Europe need now is the introduction of new reforms in a controlled default where the Eurozone will be saved in its whole integrity and a state could fail with the future promise of a resurrection. As experience show us, governments are not interested into reducing debts since there are ECB interventions. That clearly create a distortion between countries in the same monetary union, giving to the states just an illusion about their future debtor position.

Modelli matematici applicati alla probabilità di default nei sistemi di rating.

L'obiettivo del seguente lavoro è determinare attraverso l'uso di procedure statistico-econometriche, in particolare del metodo ECM, le previsioni per i tassi di default nel triennio 2013-2015, partendo dalle serie storiche di questi ultimi e da quelle macroeconomiche.

Industrial accidents triggered by lightning: causes and consequences

Natural hazards affecting industrial installations could directly or indirectly cause an accident or series of accidents with serious consequences for the environment and for human health. Accidents initiated by a natural hazard or disaster which result in the release of hazardous materials are commonly referred to as Natech (Natural Hazard Triggering a Technological Disaster) accidents. The conditions brought about by these kinds of events are particularly problematic, the presence of the natural event increases the probability of exposition and causes consequences more serious than standard technological accidents. Despite a growing body of research and more stringent regulations for the design and operation of industrial activities, Natech accidents remain a threat. This is partly due to the absence of data and dedicated risk-assessment methodologies and tools. Even the Seveso Directives for the control of risks due to major accident hazards do not include any specific impositions regarding the management of Natech risks in the process industries. Among the few available tools there is the European Standard EN 62305, which addresses generic industrial sites, requiring to take into account the possibility of lightning and to select the appropriate protection measures. Since it is intended for generic industrial installations, this tool set the requirements for the design, the construction and the modification of structures, and is thus mainly oriented towards conventional civil building. A first purpose of this project is to study the effects and the consequences on industrial sites of lightning, which is the most common adverse natural phenomenon in Europe. Lightning is the cause of several industrial accidents initiated by natural causes. The industrial sectors most susceptible to accidents triggered by lightning is the petrochemical one, due to the presence of atmospheric tanks (especially floating roof tanks) containing flammable vapors which could be easily ignited by a lightning strike or by lightning secondary effects (as electrostatic and electromagnetic pulses or ground currents). A second purpose of this work is to implement the procedure proposed by the European Standard on a specific kind of industrial plant, i.e. on a chemical factory, in order to highlight the critical aspects of this implementation. A case-study plant handling flammable liquids was selected. The application of the European Standard allowed to estimate the incidence of lightning activity on the total value of the default release frequency suggested by guidelines for atmospheric storage tanks. Though it has become evident that the European Standard does not introduce any parameters explicitly pointing out the amount of dangerous substances which could be ignited or released. Furthermore the parameters that are proposed to describe the characteristics of the structures potentially subjected to lightning strikes are insufficient to take into account the specific features of different chemical equipment commonly present in chemical plants.

Pricing in stochastic-local volatility models with default

In recent years is becoming increasingly important to handle credit risk. Credit risk is the risk associated with the possibility of bankruptcy. More precisely, if a derivative provides for a payment at cert time T but before that time the counterparty defaults, at maturity the payment cannot be effectively performed, so the owner of the contract loses it entirely or a part of it. It means that the payoff of the derivative, and consequently its price, depends on the underlying of the basic derivative and on the risk of bankruptcy of the counterparty. To value and to hedge credit risk in a consistent way, one needs to develop a quantitative model. We have studied analytical approximation formulas and numerical methods such as Monte Carlo method in order to calculate the price of a bond. We have illustrated how to obtain fast and accurate pricing approximations by expanding the drift and diffusion as a Taylor series and we have compared the second and third order approximation of the Bond and Call price with an accurate Monte Carlo simulation. We have analysed JDCEV model with constant or stochastic interest rate. We have provided numerical examples that illustrate the effectiveness and versatility of our methods. We have used Wolfram Mathematica and Matlab.