Fluctuation analysis for the loss from default

Konstantinos Spiliopoulos; Justin A. Sirignano; Kay Giesecke

doi:10.1016/j.spa.2014.02.010

Fluctuation analysis for the loss from default

Konstantinos Spiliopoulos, Justin A. Sirignano, Kay Giesecke

Research output: Contribution to journal › Article › peer-review

Abstract

We analyze the fluctuation of the loss from default around its large portfolio limit in a class of reduced-form models of correlated firm-by-firm default timing. We prove a weak convergence result for the fluctuation process and use it for developing a conditionally Gaussian approximation to the loss distribution. Numerical results illustrate the accuracy and computational efficiency of the approximation.

Original language	English (US)
Pages (from-to)	2322-2362
Number of pages	41
Journal	Stochastic Processes and their Applications
Volume	124
Issue number	7
DOIs	https://doi.org/10.1016/j.spa.2014.02.010
State	Published - Jul 2014
Externally published	Yes

Keywords

Central limit theorem
Interacting particle system
Portfolio credit risk

ASJC Scopus subject areas

Statistics and Probability
Modeling and Simulation
Applied Mathematics

Online availability

10.1016/j.spa.2014.02.010

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abstract = "We analyze the fluctuation of the loss from default around its large portfolio limit in a class of reduced-form models of correlated firm-by-firm default timing. We prove a weak convergence result for the fluctuation process and use it for developing a conditionally Gaussian approximation to the loss distribution. Numerical results illustrate the accuracy and computational efficiency of the approximation.",

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AB - We analyze the fluctuation of the loss from default around its large portfolio limit in a class of reduced-form models of correlated firm-by-firm default timing. We prove a weak convergence result for the fluctuation process and use it for developing a conditionally Gaussian approximation to the loss distribution. Numerical results illustrate the accuracy and computational efficiency of the approximation.

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KW - Interacting particle system

KW - Portfolio credit risk

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Fluctuation analysis for the loss from default

Abstract

Keywords

ASJC Scopus subject areas

Online availability

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