A Copula-based Markov Reward Approach to the Credit Spread in the European Union

  title={A Copula-based Markov Reward Approach to the Credit Spread in the European Union},
  author={Guglielmo D’Amico and Filippo Petroni and Philippe Regnault and Stefania Scocchera and Loriano Storchi},
  journal={Applied Mathematical Finance},
  pages={359 - 386}
ABSTRACT In this paper, we propose a methodology based on piecewise homogeneous Markov chain for credit ratings and a multivariate model of the credit spreads to evaluate the financial risk in the European Union (EU). Two main aspects are considered: how the financial risk is distributed among the European countries and how large is the value of the total risk. The first aspect is evaluated by means of the expected value of a dynamic entropy measure. The second one is solved by computing the… Expand
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