Fluctuation Analysis for the Loss From Default
We analyze the fluctuation of the loss from default around its large portfolio limit in a class of reduced-form models of correlated firm-by-firm default timing. We prove a weak convergence result for the fluctuation process and use it for developing a conditionally Gaussian approximation to the loss distribution. Numerical results illustrate the accuracy and computational efficiency of the approximation.
|Date of creation:||Apr 2013|
|Date of revision:||Feb 2015|
|Publication status:||Published in Stochastic Processes and their Applications, Volume 124, Issue 7, 2014, pp. 2322-2362|
|Contact details of provider:|| Web page: http://arxiv.org/|
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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.
- 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.
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