Default clustering in large portfolios: Typical events

Kay Giesecke, Konstantinos Spiliopoulos, Richard B. Sowers

Research output: Contribution to journalArticlepeer-review

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.

Original languageEnglish (US)
Pages (from-to)348-385
Number of pages38
JournalAnnals of Applied Probability
Volume23
Issue number1
DOIs
StatePublished - Feb 2013

Keywords

  • Contagion
  • Interacting point processes
  • Law of large numbers
  • Portfolio credit risk

ASJC Scopus subject areas

  • Statistics and Probability
  • Statistics, Probability and Uncertainty

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