Open Access
February 2009 Large portfolio losses: A dynamic contagion model
Paolo Dai Pra, Wolfgang J. Runggaldier, Elena Sartori, Marco Tolotti
Ann. Appl. Probab. 19(1): 347-394 (February 2009). DOI: 10.1214/08-AAP544


Using particle system methodologies we study the propagation of financial distress in a network of firms facing credit risk. We investigate the phenomenon of a credit crisis and quantify the losses that a bank may suffer in a large credit portfolio. Applying a large deviation principle we compute the limiting distributions of the system and determine the time evolution of the credit quality indicators of the firms, deriving moreover the dynamics of a global financial health indicator. We finally describe a suitable version of the “Central Limit Theorem” useful to study large portfolio losses. Simulation results are provided as well as applications to portfolio loss distribution analysis.


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Paolo Dai Pra. Wolfgang J. Runggaldier. Elena Sartori. Marco Tolotti. "Large portfolio losses: A dynamic contagion model." Ann. Appl. Probab. 19 (1) 347 - 394, February 2009.


Published: February 2009
First available in Project Euclid: 20 February 2009

zbMATH: 1159.60353
MathSciNet: MR2498681
Digital Object Identifier: 10.1214/08-AAP544

Primary: 60K35 , 91B70

Keywords: Credit contagion , credit crisis , interacting particle systems , large deviations , large portfolio losses , mean field interaction , nonreversible Markov processes , phase transition

Rights: Copyright © 2009 Institute of Mathematical Statistics

Vol.19 • No. 1 • February 2009
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