Default probabilities and default correlations under stress

Arbeitspapier

We investigate default probabilities and default correlations of Merton-type credit portfolio models in stress scenarios where a common risk factor is truncated. The analysis is performed in the class of elliptical distributions, a family of light-tailed to heavy-tailed distributions encompassing many distributions commonly found in nancial modelling. It turns out that the asymptotic limit of default probabilities and default correlations depend on the max-domain of the elliptical distribution's mixing variable. In case the mixing variable is regularly varying, default probabilities are strictly smaller than 1 and default correlations are in (0; 1). Both can be expressed in terms of the Student t-distribution function. In the rapidly varying case, default probabilities are 1 and default correlations are 0. We compare our results to the tail dependence function and discuss implications for credit portfolio modelling.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: IRTG 1792 Discussion Paper ; No. 2018-037

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Mathematical and Quantitative Methods: General
• Thema: financial risk management ; credit portfolio modelling ; stress testing ; elliptic distribution ; max-domain

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Packham, Natalie ; Kalkbrener, Michael ; Overbeck, Ludger
• Ereignis: Veröffentlichung
• (wer): Humboldt-Universität zu Berlin, International Research Training Group 1792 "High Dimensional Nonstationary Time Series"
• (wo): Berlin
• (wann): 2018

Weitere Informationen

• Handle: http://hdl.handle.net/10419/230748
• Letzte Aktualisierung: 10.03.2025, 11:41 MEZ