Copula-based factor model for credit risk analysis

@article{Lu2017CopulabasedFM,
  title={Copula-based factor model for credit risk analysis},
  author={Meng-Jou Lu and Cathy Yi-Hsuan Chen and W. H{\"a}rdle},
  journal={Review of Quantitative Finance and Accounting},
  year={2017},
  volume={49},
  pages={949-971}
}
A standard quantitative method to assess credit risk employs a factor model based on joint multivariate normal distribution properties. By extending the one-factor Gaussian copula model to produce a more accurate default forecast, this paper proposes the incorporation of a state-dependent recovery rate into the conditional factor loading and to model them sharing a unique common factor. The common factor governs the default rate and recovery rate simultaneously, implicitly creating their… Expand
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