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Default Probability Estimation via Pair Copula Constructions

Author

Listed:
  • Luciana Dalla Valle

    () (School of Computing and Mathematics, Plymouth University)

  • Maria Elena De Giuli

    () (Department of Economics and Management, University of Pavia)

  • Claudio Manelli

    () (List S.p.A)

  • Claudia Tarantola

    () (Department of Economics and Management, University of Pavia)

Abstract

In this paper we present a novel Bayesian approach for default probability estimation. The methodology is based on multivariate contingent claim analysis and pair copula theory. Balance sheet data are used to asses the firm value and to compute its default probability. The firm pricing function is obtained via a pair copula approach, and Monte Carlo simulations are used to calculate the default probability distribution. The methodology is illustrated through an application to defaulted firms data.

Suggested Citation

  • Luciana Dalla Valle & Maria Elena De Giuli & Claudio Manelli & Claudia Tarantola, 2013. "Default Probability Estimation via Pair Copula Constructions," DEM Working Papers Series 048, University of Pavia, Department of Economics and Management.
  • Handle: RePEc:pav:demwpp:demwp0048
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    Citations

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    Cited by:

    1. Masahiko Egami & Rusudan Kevkhishvili, 2016. "An Analysis of Simultaneous Company Defaults Using a Shot Noise Process," Discussion papers e-16-001, Graduate School of Economics , Kyoto University.
    2. Kjersti Aas, 2016. "Pair-Copula Constructions for Financial Applications: A Review," Econometrics, MDPI, Open Access Journal, vol. 4(4), pages 1-15, October.
    3. repec:eee:ejores:v:269:y:2018:i:3:p:1107-1121 is not listed on IDEAS
    4. repec:kap:regeco:v:53:y:2018:i:1:d:10.1007_s11149-017-9340-z is not listed on IDEAS
    5. repec:eee:jbfina:v:80:y:2017:i:c:p:135-161 is not listed on IDEAS

    More about this item

    Keywords

    Bayesian analysis; Pair Copula; Default Risk; Multivariate Contingent Claim; Markov Chain Monte Carlo; Vines.;

    JEL classification:

    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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