Fluctuation Analysis for the Loss From Default
AbstractWe analyze the fluctuation of the loss from default around its large portfolio limit in a class of reduced-form models of correlated firm-by-firm default timing. We prove a weak convergence result for the fluctuation process and use it for developing a conditionally Gaussian approximation to the loss distribution. Numerical results illustrate the accuracy and computational efficiency of the approximation.
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Bibliographic InfoPaper provided by arXiv.org in its series Papers with number 1304.1420.
Date of creation: Apr 2013
Date of revision: Oct 2013
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Web page: http://arxiv.org/
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-04-06 (All new papers)
- NEP-CWA-2013-04-06 (Central & Western Asia)
- NEP-RMG-2013-04-06 (Risk Management)
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- Paolo Dai Pra & Wolfgang J. Runggaldier & Elena Sartori & Marco Tolotti, 2007. "Large portfolio losses: A dynamic contagion model," Papers 0704.1348, arXiv.org, revised Mar 2009.
- Dai Pra, Paolo & Tolotti, Marco, 2009.
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Stochastic Processes and their Applications, Elsevier,
Elsevier, vol. 119(9), pages 2913-2944, September.
- Paolo Dai Pra & Marco Tolotti, 2008. "Heterogeneous credit portfolios and the dynamics of the aggregate losses," Papers 0806.3399, arXiv.org.
- Stefan Weber & Kay Giesecke, 2003. "Credit Contagion and Aggregate Losses," Computing in Economics and Finance 2003, Society for Computational Economics 246, Society for Computational Economics.
- Konstantinos Spiliopoulos & Richard B. Sowers, 2013. "Default Clustering in Large Pools: Large Deviations," Papers 1311.0498, arXiv.org.
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