Frailty Correlated Default
AbstractWe analyze portfolio credit risk in light of dynamic “frailty,” by which the credit qualities of different firms depend on common unobservable time-varying default covariates. Frailty is estimated to have a large impact on estimated conditional mean default rates, above and beyond those predicted by observable factors, and to cause a large increase in the likelihood of large default losses for portfolios of U.S. corporate bonds during 1980-2004.
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Bibliographic InfoPaper provided by Swiss Finance Institute in its series Swiss Finance Institute Research Paper Series with number 08-44.
Length: 53 pages
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correlated default; doubly stochastic; frailty; latent factor.;
Find related papers by JEL classification:
- C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
- C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
- C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis; Optimal Timing Strategies
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
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