Modeling risk in a dynamically changing world: from association to causation
The current crisis causes numerous economic uncertainties, such as a break-up of the European currency union, and a Greek exit from the euro area to boost the competitiveness by means of devaluation of national currency. When a factor such as exchange rate is expected to have a significant effect on the borrowers’ creditworthiness or a shift in risk regime may have occurred, risk management models based on backward-looking statistical methods are inadequate. Unlike the other approaches to risk modeling, the discussed approach for dynamic risk modeling doesn't ignore causation in favor of correlation and thus it is far more proactive. In contrast to existing risk models, FX rate is considered as a causal factor, which induces a negative correlation among default realizations and reveals ex ante dangerous risk concentrations with the clear economic and behavioral content.
|Date of creation:||16 Jul 2012|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://mpra.ub.uni-muenchen.de
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.:
- 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.
- 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.
- Sokolov, Yuri, 2009. "Interaction between market and credit risk: Focus on the endogeneity of aggregate risk," MPRA Paper 18245, University Library of Munich, Germany.
- Egloff, Daniel & Leippold, Markus & Vanini, Paolo, 2007. "A simple model of credit contagion," Journal of Banking & Finance, Elsevier, vol. 31(8), pages 2475-2492, August.
- Breuer, Thomas & Jandacka, Martin & Rheinberger, Klaus & Summer, Martin, 2008. "Regulatory capital for market and credit risk interaction: is current regulation always conservative?," Discussion Paper Series 2: Banking and Financial Studies 2008,14, Deutsche Bundesbank, Research Centre.
- Zhou, Chunsheng, 2001. "An Analysis of Default Correlations and Multiple Defaults," Review of Financial Studies, Society for Financial Studies, vol. 14(2), pages 555-76.
- Mathias Drehmann & Steffen Sorensen & Marco Stringa, 2007. "Integrating credit and interest rate risk: A theoretical framework and an application to banks' balance sheets," Money Macro and Finance (MMF) Research Group Conference 2006 151, Money Macro and Finance Research Group.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:40096. 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: (Ekkehart Schlicht)
If references are entirely missing, you can add them using this form.