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An exponential model for dependent defaults

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  • Giesecke, Kay
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    Abstract

    A thorough understanding of the joint default behavior of credit-risky securities is essential for credit risk measurement as well as the valuation of multi-name credit derivatives and Collateralized Debt Obligations. In this paper we study a simple and tractable intensity-based model for correlated defaults, in which unpredictable default arrival times are jointly exponentially distributed. Since all critical results are given in closedform, the model can be easily mplemented. The efficient simulation of dependent default times for pricing and risk management purposes is straightforward as well. Parameter calibration relies on readily available market data as well as data and figures provided by rating agencies and credit risk management solutions. --

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    Bibliographic Info

    Paper provided by Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes in its series SFB 373 Discussion Papers with number 2002,52.

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    Date of creation: 2002
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    Handle: RePEc:zbw:sfb373:200252

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    Related research

    Keywords: simulation; correlated defaults; multivariate exponential model;

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    Cited by:
    1. Abel Elizalde, 2006. "Credit Risk Models I: Default Correlation In Intensity Models," Working Papers wp2006_0605, CEMFI.

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