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 language | English (US) |
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Pages (from-to) | 348-385 |
Number of pages | 38 |
Journal | Annals of Applied Probability |
Volume | 23 |
Issue number | 1 |
DOIs | |
State | Published - 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