Journal of Applied Mathematics

Sample-Path Large Deviations in Credit Risk

V. J. G. Leijdekker, M. R. H. Mandjes, and P. J. C. Spreij

Full-text: Open access

Abstract

The event of large losses plays an important role in credit risk. As these large losses are typically rare, and portfolios usually consist of a large number of positions, large deviation theory is the natural tool to analyze the tail asymptotics of the probabilities involved. We first derive a sample-path large deviation principle (LDP) for the portfolio's loss process, which enables the computation of the logarithmic decay rate of the probabilities of interest. In addition, we derive exact asymptotic results for a number of specific rare-event probabilities, such as the probability of the loss process exceeding some given function.

Article information

Source
J. Appl. Math., Volume 2011 (2011), Article ID 354171, 28 pages.

Dates
First available in Project Euclid: 15 March 2012

Permanent link to this document
https://projecteuclid.org/euclid.jam/1331818672

Digital Object Identifier
doi:10.1155/2011/354171

Mathematical Reviews number (MathSciNet)
MR2854958

Zentralblatt MATH identifier
1235.91169

Citation

Leijdekker, V. J. G.; Mandjes, M. R. H.; Spreij, P. J. C. Sample-Path Large Deviations in Credit Risk. J. Appl. Math. 2011 (2011), Article ID 354171, 28 pages. doi:10.1155/2011/354171. https://projecteuclid.org/euclid.jam/1331818672


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