Fluctuation analysis for the loss from default

Konstantinos Spiliopoulos, Justin A. Sirignano, Kay Giesecke

Research output: Contribution to journalArticlepeer-review


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 languageEnglish (US)
Pages (from-to)2322-2362
Number of pages41
JournalStochastic Processes and their Applications
Issue number7
StatePublished - Jul 2014
Externally publishedYes


  • Central limit theorem
  • Interacting particle system
  • Portfolio credit risk

ASJC Scopus subject areas

  • Statistics and Probability
  • Modeling and Simulation
  • Applied Mathematics


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