by Harry Mamaysky, Hongyu Wu, Yiwen Shen
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Suggested foundations for credit and counterparty risk and text and language models in finance. Specialist prerequisites vary by paper.
Separate default probability, loss severity and exposure.
Read conditional default and exposure quantities.
Understand how text is converted into numerical inputs.
Check whether labels measure the financial construct of interest.
Study dependence between defaults.
Connect exposure and counterparty losses to valuation adjustments.
Test whether a text-derived signal survives an honest financial evaluation.