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.
Citation
Kay Giesecke. Konstantinos Spiliopoulos. Richard B. Sowers. "Default clustering in large portfolios: Typical events." Ann. Appl. Probab. 23 (1) 348 - 385, February 2013. https://doi.org/10.1214/12-AAP845
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