Fluctuation Analysis for the Loss From Default
Probability
2015-02-20 v4 Portfolio Management
Risk Management
Abstract
We analyze the fluctuation of the loss from default around its large portfolio limit in a class of reduced-form models of correlated firm-by-firm default timing. We prove a weak convergence result for the fluctuation process and use it for developing a conditionally Gaussian approximation to the loss distribution. Numerical results illustrate the accuracy and computational efficiency of the approximation.
Keywords
Cite
@article{arxiv.1304.1420,
title = {Fluctuation Analysis for the Loss From Default},
author = {Konstantinos Spiliopoulos and Justin A. Sirignano and Kay Giesecke},
journal= {arXiv preprint arXiv:1304.1420},
year = {2015}
}