Credit contagion and aggregate losses

Arbeitspapier

Credit contagion refers to the propagation of economic distress from one firm or sovereign government to another. In this paper we model credit contagion phenomena and study the fluctuation of aggregate credit losses on large portfolios of financial positions. The joint dynamics of firms' credit ratings is modeled by a voter process, which is well-known in the theory of interacting particle systems. We clarify the structure of the equilibrium joint rating distribution using ergodic decomposition. We analyze the quantiles of the portfolio loss distribution and in particular their relation to the degree of model risk. After a proper re-scaling taking care of the heavy tails induced by the contagion dynamics, we provide a normal approximation of both the equilibrium rating distribution and the portfolio loss distribution.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: SFB 373 Discussion Paper ; No. 2002,73

Klassifikation und Themen

• Klassifikation: Wirtschaft
• Thema: credit contagion ; portfolio losses ; voter model ; Choquet theory ; ergodic decomposition ; re-scaling

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Giesecke, Kay ; Weber, Stefan
• Ereignis: Veröffentlichung
• (wer): Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes
• (wo): Berlin
• (wann): 2002

Weitere Informationen

• Handle: http://hdl.handle.net/10419/65336
• URN: urn:nbn:de:kobv:11-10049393
• Letzte Aktualisierung: 20.09.2024, 08:22 MESZ