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Frailty Correlated Default

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Author Info

  • Darrell DUFFIE

    (Stanford University)

  • Andreas ECKNER

    (Stanford University)

  • Guillaume HOREL

    (Stanford University)

  • Leandro SAITA

    (Lehman Brothers)

Registered author(s):

    Abstract

    We 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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    File URL: http://ssrn.com/abstract=1314771
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    Bibliographic Info

    Paper provided by Swiss Finance Institute in its series Swiss Finance Institute Research Paper Series with number 08-44.

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    Length: 53 pages
    Date of creation:
    Date of revision:
    Handle: RePEc:chf:rpseri:rp0844

    Contact details of provider:
    Web page: http://www.SwissFinanceInstitute.ch
    More information through EDIRC

    Related research

    Keywords: correlated default; doubly stochastic; frailty; latent factor.;

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    Cited by:
    1. Xin Huang & Hao Zhou & Haibin Zhu, 2009. "A Framework for Assessing the Systemic Risk of Major Financial Institutions," BIS Working Papers 281, Bank for International Settlements.
    2. Jose Giancarlo Gasha & Andre Santos & Jorge A. Chan-Lau & Carlos I. Medeiros & Marcos Souto & Christian Capuano, 2009. "Recent Advances in Credit Risk Modeling," IMF Working Papers 09/162, International Monetary Fund.

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