The Annals of Applied Probability

Default clustering in large portfolios: Typical events

Kay Giesecke, Konstantinos Spiliopoulos, and Richard B. Sowers

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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.

Article information

Source
Ann. Appl. Probab., Volume 23, Number 1 (2013), 348-385.

Dates
First available in Project Euclid: 25 January 2013

Permanent link to this document
https://projecteuclid.org/euclid.aoap/1359124389

Digital Object Identifier
doi:10.1214/12-AAP845

Mathematical Reviews number (MathSciNet)
MR3059238

Zentralblatt MATH identifier
1262.91141

Subjects
Primary: 91G40: Credit risk 60H10: Stochastic ordinary differential equations [See also 34F05] 60G55: Point processes 60G57: Random measures 91680

Keywords
Interacting point processes law of large numbers portfolio credit risk contagion

Citation

Giesecke, Kay; Spiliopoulos, Konstantinos; Sowers, Richard B. Default clustering in large portfolios: Typical events. Ann. Appl. Probab. 23 (2013), no. 1, 348--385. doi:10.1214/12-AAP845. https://projecteuclid.org/euclid.aoap/1359124389


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