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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- 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.
- Paolo Dai Pra & Marco Tolotti, 2008. "Heterogeneous credit portfolios and the dynamics of the aggregate losses," Papers 0806.3399, arXiv.org.
- Sanjiv R. Das & Darrell Duffie & Nikunj Kapadia & Leandro Saita, 2007. "Common Failings: How Corporate Defaults Are Correlated," Journal of Finance, American Finance Association, vol. 62(1), pages 93-117, 02.
- 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.
- Paolo Dai Pra & Wolfgang J. Runggaldier & Elena Sartori & Marco Tolotti, 2007. "Large portfolio losses: A dynamic contagion model," Papers 0704.1348, arXiv.org, revised Mar 2009.
- Stefan Weber & Kay Giesecke, 2003. "Credit Contagion and Aggregate Losses," Computing in Economics and Finance 2003 246, Society for Computational Economics. Full references (including those not matched with items on IDEAS)