Default clustering in large portfolios: Typical events
Risk Management
2013-02-13 v3 Probability
Computational Finance
Abstract
We develop a dynamic point process model of correlated default timing in a portfolio of firms, and analyze typical default profiles in the limit as the size of the pool grows. In our model, a firm defaults at a stochastic intensity that is influenced by an idiosyncratic risk process, a systematic risk process common to all firms, and past defaults. We prove a law of large numbers for the default rate in the pool, which describes the "typical" behavior of defaults.
Keywords
Cite
@article{arxiv.1104.1773,
title = {Default clustering in large portfolios: Typical events},
author = {Kay Giesecke and Konstantinos Spiliopoulos and Richard B. Sowers},
journal= {arXiv preprint arXiv:1104.1773},
year = {2013}
}
Comments
Published in at http://dx.doi.org/10.1214/12-AAP845 the Annals of Applied Probability (http://www.imstat.org/aap/) by the Institute of Mathematical Statistics (http://www.imstat.org)