Copula-Based Default Dependence Modelling: Where Do We Stand?
Copula functions have proven to be extremely useful in describing joint default and survival probabilities in credit risk applications. We overview the state of the art and point out some open modelling issues. We discuss first joint default modelling in diffusion based structural models, then in intensity based ones, focusing on the possibility - and the dynamic inconsistency - of re-mapping a model of the second type into one of the first. For both types of models, we discuss calibration issues under the risk neutral measure, using the factor copula device. The survey leads us to focus on a non-diffusive structural model, which can be re-mapped in a dynamic consistent intensity-based one, and which can be calibrated under a risk neutral measure without assuming equicorrelation.
|Date of creation:||Mar 2007|
|Date of revision:|
|Contact details of provider:|| Postal: Corso Unione Sovietica, 218bis - 10134 Torino - Italy|
Phone: +39 011 6706060
Fax: +39 011 6706060
Web page: http://www.esomas.unito.it/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Duffie, Darrell & Singleton, Kenneth J, 1997. " An Econometric Model of the Term Structure of Interest-Rate Swap Yields," Journal of Finance, American Finance Association, vol. 52(4), pages 1287-1321, September.
- Longstaff, Francis A & Schwartz, Eduardo S, 1995. " A Simple Approach to Valuing Risky Fixed and Floating Rate Debt," Journal of Finance, American Finance Association, vol. 50(3), pages 789-819, July.
- Elisa Luciano & Wim Schoutens, 2006.
"A multivariate jump-driven financial asset model,"
Taylor & Francis Journals, vol. 6(5), pages 385-402.
- Elisa Luciano & Wim Schoutens, 2005. "A Multivariate Jump-Driven Financial Asset Model," ICER Working Papers - Applied Mathematics Series 6-2005, ICER - International Centre for Economic Research.
- Elisa Luciano & Wim Schoutens, 2006. "A Multivariate Jump-Driven Financial Asset Model," Carlo Alberto Notebooks 29, Collegio Carlo Alberto.
- Black, Fischer & Cox, John C, 1976. "Valuing Corporate Securities: Some Effects of Bond Indenture Provisions," Journal of Finance, American Finance Association, vol. 31(2), pages 351-67, May.
- Filippo Fiorani & Elisa Luciano & Patrizia Semeraro, 2007. "Single and joint default in a structural model with purely discontinuous assets," Carlo Alberto Notebooks 41, Collegio Carlo Alberto.
- Filippo Fiorani & Elisa Luciano, 2006. "Credit risk in pure jump structural models," ICER Working Papers - Applied Mathematics Series 6-2006, ICER - International Centre for Economic Research.
- Merton, Robert C., 1973.
"On the pricing of corporate debt: the risk structure of interest rates,"
684-73., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Merton, Robert C, 1974. "On the Pricing of Corporate Debt: The Risk Structure of Interest Rates," Journal of Finance, American Finance Association, vol. 29(2), pages 449-70, May.
- Joshua V. Rosenberg, 2003. "Nonparametric pricing of multivariate contingent claims," Staff Reports 162, Federal Reserve Bank of New York.
- Duffie, Darrell & Lando, David, 2001. "Term Structures of Credit Spreads with Incomplete Accounting Information," Econometrica, Econometric Society, vol. 69(3), pages 633-64, May.
When requesting a correction, please mention this item's handle: RePEc:icr:wpmath:21-2007. 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: (Simone Pellegrino)
If references are entirely missing, you can add them using this form.