Default clustering in large portfolios: Typical events
AbstractWe develop a dynamic point process model of correlated default timing in a portfolio of firms, and analyze typical default profiles in the limit as the size of the pool grows. In our model, a firm defaults at a stochastic intensity that is influenced by an idiosyncratic risk process, a systematic risk process common to all firms, and past defaults. We prove a law of large numbers for the default rate in the pool, which describes the "typical" behavior of defaults.
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Bibliographic InfoPaper provided by arXiv.org in its series Papers with number 1104.1773.
Date of creation: Apr 2011
Date of revision: Feb 2013
Publication status: Published in Annals of Applied Probability 2013, Vol. 23, No. 1, 348-385
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- Konstantinos Spiliopoulos & Richard B. Sowers, 2013. "Default Clustering in Large Pools: Large Deviations," Papers 1311.0498, arXiv.org.
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