Graphical models for correlated defaults

DOI10.1111/J.1467-9965.2011.00499.XMaRDI QIDQ4919613zbMATH OpenOpenAlexFDO

Authors Ismail Onur Filiz, Xin Guo, Jason Morton, Bernd Sturmfels

Publication date 14 May 2013

Published in Mathematical Finance (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/0809.1393

zbMATH Keywords

algebraic statisticscorrelated defaultcorrelation smiledefault dependencegraphical modelsIsing modelnormal copulatoric models

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20) Statistical methods; risk measures (91G70)

Abstract: A simple graphical model for correlated defaults is proposed, with explicit formulas for the loss distribution. Algebraic geometry techniques are employed to show that this model is well posed for default dependence: it represents any given marginal distribution for single firms and pairwise correlation matrix. These techniques also provide a calibration algorithm based on maximum likelihood estimation. Finally, the model is compared with standard normal copula model in terms of tails of the loss distribution and implied correlation smile.

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Cited in

(8)

• Long-range Ising model for credit portfolios with heterogeneous credit exposures
• Credit risk contagion based on asymmetric information association
• Temporal correlation of defaults in subprime securitization
• On modeling credit defaults: a probabilistic Boolean network approach
• Nonexistence of Markovian time dynamics for graphical models of correlated default
• Computing optimal recovery policies for financial markets
• scientific article; zbMATH DE number 5198305 (Why is no real title available?)
• CORRELATED DEFAULTS IN INTENSITY‐BASED MODELS

Describes a project that uses

Uses Software

• CreditRisk+

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