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Dependence properties of dynamic credit risk models
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Nicole Bäuerle
Published/Copyright:
August 31, 2012
Abstract
We give a unified mathematical framework for reduced-form models for portfolio credit risk and identify properties which lead to positive dependence of default times. Dependence in the default hazard rates is modeled by common macroeconomic factors as well as by inter-obligor links. It is shown that popular models produce positive dependence between defaults in terms of association. Implications of these results are discussed, in particular when we turn to pricing of credit derivatives. In mathematical terms our paper contains results about association of a class of non-Markovian processes.
Published Online: 2012-08-31
Published in Print: 2012-08
© by Oldenbourg Wissenschaftsverlag, München, Germany
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Articles in the same Issue
- On the functional local linear estimate for spatial regression
- Adaptive estimation for an inverse regression model with unknown operator
- Dependence properties of dynamic credit risk models
- A note on optimal consumption and investment in a geometric Ornstein–Uhlenbeck market
Keywords for this article
portfolio credit risk;
hazard rate model;
reduced-form model;
copula;
association
Articles in the same Issue
- On the functional local linear estimate for spatial regression
- Adaptive estimation for an inverse regression model with unknown operator
- Dependence properties of dynamic credit risk models
- A note on optimal consumption and investment in a geometric Ornstein–Uhlenbeck market
