Default Contagion in Large Homogeneous Portfolios
We study default contagion in large homogeneous credit portfolios. Using data from the iTraxx Europe series, two synthetic CDO portfolios are calibrated against their tranche spreads, index CDS spreads and average CDS spreads, all with five year maturity. After the calibrations, which render perfect fits, we investigate the implied expected ordered defaults times, implied default correlations, and implied multivariate default and survival distributions, both for ordered and unordered default times. Many of the numerical results differ substantially from the corresponding quantities in a smaller inhomogeneous CDS portfolio. Furthermore, the studies indicate that market CDO spreads imply extreme default clustering in upper tranches. The default contagion is introduced by letting individual intensities jump when other defaults occur, but be constant between defaults. The model is translated into a Markov jump process. Expressions for the investigated quantities are derived by using matrix-analytic methods.
To our knowledge, this item is not available for
download. To find whether it is available, there are three
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
|Date of creation:||31 Oct 2007|
|Date of revision:|
|Publication status:||Forthcoming in The Credit Derivatives Handbook : Global Perspectives, Innovations and Market Drivers, Gregoriou, Greg N. , Ali, Paul (eds.), 2007, chapter xx, McGraw-Hill.|
|Contact details of provider:|| Postal: |
Phone: 031-773 10 00
Web page: http://www.handels.gu.se/econ/
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:hhs:gunwpe:0272. 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: (Marie Andersson)
If references are entirely missing, you can add them using this form.