Default clustering in large portfolios: Typical events
We develop a dynamic point process model of correlated default timing in a portfolio of firms, and analyze typical default profiles in the limit as the size of the pool grows. In our model, a firm defaults at a stochastic intensity that is influenced by an idiosyncratic risk process, a systematic risk process common to all firms, and past defaults. We prove a law of large numbers for the default rate in the pool, which describes the "typical" behavior of defaults.
|Date of creation:||Apr 2011|
|Date of revision:||Feb 2013|
|Publication status:||Published in Annals of Applied Probability 2013, Vol. 23, No. 1, 348-385|
|Contact details of provider:|| Web page: http://arxiv.org/|
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- Sanjiv R. Das & Darrell Duffie & Nikunj Kapadia & Leandro Saita, 2007.
"Common Failings: How Corporate Defaults Are Correlated,"
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- Sanjiv Das & Darrell Duffie & Nikunj Kapadia & Leandro Saita, 2006. "Common Failings: How Corporate Defaults are Correlated," NBER Working Papers 11961, National Bureau of Economic Research, Inc.
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- Paolo Dai Pra & Marco Tolotti, 2008.
"Heterogeneous credit portfolios and the dynamics of the aggregate losses,"
- Dai Pra, Paolo & Tolotti, Marco, 2009. "Heterogeneous credit portfolios and the dynamics of the aggregate losses," Stochastic Processes and their Applications, Elsevier, vol. 119(9), pages 2913-2944, September.
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