Work

Default clustering in large portfolios: Typical events

Year: 2013

Type: article

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.

Source: The Annals of Applied Probability

DOI: 10.1214/12-aap845

Authors: Kay Giesecke, Konstantinos Spiliopoulos, Richard B. Sowers

Institutions: University of Illinois Urbana-Champaign, Brown University, Stanford University

Language: English

Topic: Stochastic processes and financial applications

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: bronze

OpenAlex ID: W3102149128

FWCI: 13.54

Cites: 23

Cited by: 71

Related to: 10