arXiv subjects

Djibril Sarr

Publications and source records attributed to Djibril Sarr.

4 recordsLinked to original sources

arXiv2024

Financial Stochastic Models Diffusion: From Risk-Neutral to Real-World Measure

This research presents a comprehensive framework for transitioning financial diffusion models from the risk-neutral (RN) measure to the real-world (RW) measure, leveraging results from probability theory, specifically Girsanov's theorem. The RN measure, fundamental in derivative pricing, is contrasted with the RW measure, which incorporates risk premiums and better reflects actual market behavior and investor preferences, making it crucial for risk management. We address the challenges of incorporating real-world dynamics into financial models, such as accounting for market premiums, producing realistic term structures of market indicators, and fitting any arbitrarily given market curve. Our framework is designed to be general, applicable to a variety of diffusion models, including those with non-additive noise such as the CIR++ model. Through case studies involving Goldman Sachs' 2024 global credit outlook forecasts and the European Banking Authority (EBA) 2023 stress tests, we validate the robustness, practical relevance and applicability of our methodology. This work contributes to the literature by providing a versatile tool for better risk measures and enhancing the realism of financial models under the RW measure. Our model's versatility extends to stress testing and scenario analysis, providing practitioners with a powerful tool to evaluate various what-if scenarios and make well-informed decisions, particularly in pricing and risk management strategies.

q-fin.MF↗

arXiv2024

Towards Explainable Automated Data Quality Enhancement without Domain Knowledge

In the era of big data, ensuring the quality of datasets has become increasingly crucial across various domains. We propose a comprehensive framework designed to automatically assess and rectify data quality issues in any given dataset, regardless of its specific content, focusing on both textual and numerical data. Our primary objective is to address three fundamental types of defects: absence, redundancy, and incoherence. At the heart of our approach lies a rigorous demand for both explainability and interpretability, ensuring that the rationale behind the identification and correction of data anomalies is transparent and understandable. To achieve this, we adopt a hybrid approach that integrates statistical methods with machine learning algorithms. Indeed, by leveraging statistical techniques alongside machine learning, we strike a balance between accuracy and explainability, enabling users to trust and comprehend the assessment process. Acknowledging the challenges associated with automating the data quality assessment process, particularly in terms of time efficiency and accuracy, we adopt a pragmatic strategy, employing resource-intensive algorithms only when necessary, while favoring simpler, more efficient solutions whenever possible. Through a practical analysis conducted on a publicly provided dataset, we illustrate the challenges that arise when trying to enhance data quality while keeping explainability. We demonstrate the effectiveness of our approach in detecting and rectifying missing values, duplicates and typographical errors as well as the challenges remaining to be addressed to achieve similar accuracy on statistical outliers and logic errors under the constraints set in our work.

cs.DB↗

arXiv2024

Credit Spreads' Term Structure: Stochastic Modeling with CIR++ Intensity

This paper introduces a novel stochastic model for credit spreads. The stochastic approach leverages the diffusion of default intensities via a CIR++ model and is formulated within a risk-neutral probability space. Our research primarily addresses two gaps in the literature. The first is the lack of credit spread models founded on a stochastic basis that enables continuous modeling, as many existing models rely on factorial assumptions. The second is the limited availability of models that directly yield a term structure of credit spreads. An intermediate result of our model is the provision of a term structure for the prices of defaultable bonds. We present the model alongside an innovative, practical, and conservative calibration approach that minimizes the error between historical and theoretical volatilities of default intensities. We demonstrate the robustness of both the model and its calibration process by comparing its behavior to historical credit spread values. Our findings indicate that the model not only produces realistic credit spread term structure curves but also exhibits consistent diffusion over time. Additionally, the model accurately fits the initial term structure of implied survival probabilities and provides an analytical expression for the credit spread of any given maturity at any future time.

q-fin.RM↗

arXiv2021

Deep Calibration of Interest Rates Model

For any financial institution, it is essential to understand the behavior of interest rates. Despite the growing use of Deep Learning, for many reasons (expertise, ease of use, etc.), classic rate models such as CIR and the Gaussian family are still widely used. In this paper, we propose to calibrate the five parameters of the G2++ model using Neural Networks. Our first model is a Fully Connected Neural Network and is trained on covariances and correlations of Zero-Coupon and Forward rates. We show that covariances are more suited to the problem than correlations due to the effects of the unfeasible backpropagation phenomenon, which we analyze in this paper. The second model is a Convolutional Neural Network trained on Zero-Coupon rates with no further transformation. Our numerical tests show that our calibration based on deep learning outperforms the classic calibration method used as a benchmark. Additionally, our Deep Calibration approach is designed to be systematic. To illustrate this feature, we applied it to calibrate the popular CIR intensity model.

q-fin.ST↗