An extension of Davis and Lo's contagion model
From MaRDI portal
(Redirected from Publication:5746773)
Abstract: The present paper provides a multi-period contagion model in the credit risk field. Our model is an extension of Davis and Lo's infectious default model. We consider an economy of n firms which may default directly or may be infected by other defaulting firms (a domino effect being also possible). The spontaneous default without external influence and the infections are described by not necessarily independent Bernoulli-type random variables. Moreover, several contaminations could be required to infect another firm. In this paper we compute the probability distribution function of the total number of defaults in a dependency context. We also give a simple recursive algorithm to compute this distribution in an exchangeability context. Numerical applications illustrate the impact of exchangeability among direct defaults and among contaminations, on different indicators calculated from the law of the total number of defaults. We then examine the calibration of the model on iTraxx data before and during the crisis. The dynamic feature together with the contagion effect seem to have a significant impact on the model performance, especially during the recent distressed period.
Recommendations
Cites work
- A DYNAMIC APPROACH TO THE MODELING OF CORRELATION CREDIT DERIVATIVES USING MARKOV CHAINS
- Bankruptcy, Counterparty Risk, and Contagion*
- BSLP: Markovian bivariate spread-loss model for portfolio credit derivatives
- CORRELATED DEFAULTS IN INTENSITY‐BASED MODELS
- Default intensities implied by CDO spreads: inversion formula and model calibration
- Does positive dependence between individual risks increase stop-loss premiums?
- Dynamic hedging of synthetic CDO tranches with spread risk and default contagion
- Hedging default risks of CDOs in Markovian contagion models
- scientific article; zbMATH DE number 1006369 (Why is no real title available?)
- scientific article; zbMATH DE number 3249395 (Why is no real title available?)
- Joint distributions of portfolio losses and exotic portfolio products
- Measuring the impact of dependence between claims occurrences.
- Pricing and hedging of portfolio credit derivatives with interacting default intensities
- Pricing credit derivatives under incomplete information: a nonlinear-filtering approach
- Recovering portfolio default intensities implied by CDO quotes
- Two-dimensional Markovian model for dynamics of aggregate credit loss
Cited in
(14)- Correlated risks vs contagion in stochastic transition models
- Moment estimates in the first Borel-Cantelli lemma with applications to mean deviation frequencies
- Credit risk model with contagious default dependencies affected by macro-economic condition
- Valuation of portfolio loss derivatives in an infectious model
- On infectious model for dependent defaults
- scientific article; zbMATH DE number 3736374 (Why is no real title available?)
- Aggregating sectors in the infectious defaults model
- A factor contagion model for portfolio credit derivatives
- Credit contagion default Aalen additive hazard models
- A set-valued Markov chain approach to credit default
- Credit risk propagation in structural-form models
- A default system with overspilling contagion
- Modeling portfolio loss distribution under infectious defaults and immunization
- Credit risk and contagion via self-exciting default intensity
This page was built for publication: An extension of Davis and Lo's contagion model
Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q5746773)
