IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

A Nonparametric Urn-Based Approach To Interacting Failing Systems With An Application To Credit Risk Modeling

  • PASQUALE CIRILLO

    ()

    (Institute of Mathematical Statistics and Actuarial Sciences, University of Bern, Sidlerstrasse 5, Bern, CH-3012, Switzerland)

  • JÜRG HÜSLER

    (Institute of Mathematical Statistics and Actuarial Sciences, University of Bern, Sidlerstrasse 5, Bern, CH-3012, Switzerland)

  • PIETRO MULIERE

    (Department of Decision Sciences, Bocconi University Via Röntgen 1, Milan, IT-20136, Italy)

In this paper we propose a new nonparametric approach to interacting failing systems (FS), that is systems whose probability of failure is not negligible in a fixed time horizon, a typical example being firms and financial bonds. The main purpose when studying a FS is to calculate the probability of default and the distribution of the number of failures that may occur during the observation period. A model used to study a failing system is defined default model. In particular, we present a general recursive model constructed by the means of interacting urns. After introducing the theoretical model and its properties we show a first application to credit risk modeling, showing how to assess the idiosyncratic probability of default of an obligor and the joint probability of failure of a set of obligors in a portfolio of risks, that are divided into reliability classes.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.worldscinet.com/cgi-bin/details.cgi?type=pdf&id=pii:S0219024910006170
Download Restriction: Access to full text is restricted to subscribers.

File URL: http://www.worldscinet.com/cgi-bin/details.cgi?type=html&id=pii:S0219024910006170
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by World Scientific Publishing Co. Pte. Ltd. in its journal International Journal of Theoretical and Applied Finance.

Volume (Year): 13 (2010)
Issue (Month): 08 ()
Pages: 1223-1240

as
in new window

Handle: RePEc:wsi:ijtafx:v:13:y:2010:i:08:p:1223-1240
Contact details of provider: Web page: http://www.worldscinet.com/ijtaf/ijtaf.shtml

Order Information: Email:


No references listed on IDEAS
You can help add them by filling out this form.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:wsi:ijtafx:v:13:y:2010:i:08:p:1223-1240. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Tai Tone Lim)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.