Invariance properties in the dynamic Gaussian copula model

DOI10.1051/PROC/201756022zbMATH Open1407.91263arXiv1702.03232OpenAlexW3123614056MaRDI QIDQ4606383FDOQ4606383

Authors: Stéphane Crépey, Shiqi Song 

Publication date: 7 March 2018

Published in: ESAIM: Proceedings and Surveys (Search for Journal in Brave)

Abstract: We prove that the default times (or any of their minima) in the dynamic Gaussian copula model of Cr{'e}pey, Jeanblanc, and Wu (2013) are invariance times in the sense of Cr{'e}pey and Song (2017), with related invariance probability measures different from the pricing measure. This reflects a departure from the immersion property, whereby the default intensities of the surviving names and therefore the value of credit protection spike at default times. These properties are in line with the wrong-way risk feature of counterparty risk embedded in credit derivatives, i.e. the adverse dependence between the default risk of a counterparty and an underlying credit derivative exposure.

Full work available at URL: https://arxiv.org/abs/1702.03232

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zbMATH Keywords

Gaussian copulaCDSwrong-way riskcounterparty credit riskdynamic copulaimmersion propertyinvariance time

Mathematics Subject Classification ID

Statistics of extreme values; tail inference (62G32) Characterization and structure theory for multivariate probability distributions; copulas (62H05) Applications of statistics to actuarial sciences and financial mathematics (62P05) Credit risk (91G40)

Cited In (3)

• A default contagion model for pricing defaultable bonds from an information based perspective
• WRONG-WAY RISK CVA MODELS WITH ANALYTICAL EPE PROFILES UNDER GAUSSIAN EXPOSURE DYNAMICS
• INFORMATIONALLY DYNAMIZED GAUSSIAN COPULA

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