On infectious model for dependent defaults

DOI10.3233/RDA-170131MaRDI QIDQ3119658zbMATH OpenOpenAlexFDO

Authors Wai-Ki Ching, Xiaoyue Li, Tak Kuen Siu, Harry Zheng, Jia-Wen Gu

Publication date 12 March 2019

Published in Risk and Decision Analysis (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1301.0186

zbMATH Keywords

correlated defaultscrisis durationinfectious models

Mathematics Subject Classification ID

Credit risk (91G40)

Abstract: In this paper, we propose a two-sector Markovian infectious model, which is an extension of Greenwood's model. The central idea of this model is that the causality of defaults of two sectors is in both direction, which enrich dependence dynamics. The Bayesian Information Criterion is adopted to compare the proposed model with the two-sector model in credit literature using the real data. We find that the newly proposed model is statistically better than the model in past literature. We also introduce two measures: CRES and CRVaR to give risk evaluation of our model.

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