Probabilistic Overview of Probabilities of Default for Low Default Portfolios by K. Pluto and D. Tasche

DOI10.17721/1812-5409.2023/2.7MaRDI QIDQ6186818zbMATH OpenOpenAlexFDO

Authors Andrius Grigutis

Publication date 2 February 2024

Published in Bulletin of Taras Shevchenko National University of Kyiv. Series: Physics and Mathematics (Search for Journal in Brave)

Copyright license Creative Commons Attribution 4.0 International

Full work available at URL https://arxiv.org/abs/2303.06148

zbMATH Keywords

beta-normal distributionbinomial distributionPluto-Tasche methodprobability of defaultVasicek distribution

Mathematics Subject Classification ID

Applications of statistics to actuarial sciences and financial mathematics (62P05) Risk models (general) (91B05)

Abstract: This article gives a probabilistic overview of the widely used method of default probability estimation proposed by K. Pluto and D. Tasche. There are listed detailed assumptions and derivation of the inequality where the probability of default is involved under the influence of systematic factor. The author anticipates adding more clarity, especially for early career analysts or scholars, regarding the assumption of borrowers' independence, conditional independence and interaction between the probability distributions such as binomial, beta, normal and others. There is also shown the relation between the probability of default and the joint distribution of $sqrtvarrhoX-sqrt1-varrhoY$, where $X$, including but not limiting, is the standard normal, $Y$ admits, including but not limiting, the beta-normal distribution and $X,,Y$ are independent.

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