Modeling of Contagious Credit Events and Risk Analysis of Credit Portfolios |
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Authors: | Suguru Yamanaka Masaaki Sugihara Hidetoshi Nakagawa |
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Affiliation: | (1) Research Center Process and Product Engineering, University of Applied Sciences Vorarlberg, Hochschulstrasse 1, 6850 Dornbirn, Austria;(2) Economic Studies Division, Oesterreichische Nationalbank, Otto-Wagner-Platz 3, 1011 Wien, Austria |
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Abstract: | We present a new model of the occurence of credit events such as rating changes and defaults for risk analyses of some portfolio credit derivatives. The framework of our model is based on a so-called top-down approach. Specifically, we first consider modeling the point process of each type of credit event in the whole economy using a self-exciting intensity process. Next, we characterize the point processes of credit events in the underlying sub-portfolio using random thinning processes specified by the distribution of credit ratings in the sub-portfolio. One of the main features of our model is that the model can capture credit risk contagion simultaneously among several credit portfolios. We present a credit event simulation algorithm based on our model and illustrate an application of the model to risk analyses of loan portfolios. |
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