Heterogeneous credit portfolios and the dynamics of the aggregate losses

@article{Pra2008HeterogeneousCP,
  title={Heterogeneous credit portfolios and the dynamics of the aggregate losses},
  author={Paolo Dai Pra and Marco Tolotti},
  journal={Stochastic Processes and their Applications},
  year={2008},
  volume={119},
  pages={2913-2944}
}
  • P. D. Pra, M. Tolotti
  • Published 20 June 2008
  • Economics
  • Stochastic Processes and their Applications
View PDF on arXiv
37 Citations
Highly Influential Citations
1
Background Citations
14
Methods Citations
5

Figures from this paper

37 Citations

Large portfolio losses in a turbulent market
Estimation of Risk Measures for Large Credit Portfolios
TLDR
The results show that the saddle point approximation performs not only very quickly but also very accurately over the whole loss distribution function of large mark-to-market credit portfolios.
Cascading failure and fundamental uncertainty: Divergence in financial risk assessment
By applying common financial risk assessment models to the network economy formalized in Delli Gatti et al. (2006), and by contextualizing both in the broader literature on complexity in economic…
Systemic Risk and Default Clustering for Large Financial Systems
As it is known in the finance risk and macroeconomics literature, risk-sharing in large portfolios may increase the probability of creation of default clusters and of systemic risk. We review recent…
Default clustering in large portfolios: Typical events.
We develop a dynamic point process model of correlated default timing in a portfolio of firms, and analyze typical default profiles in the limit as the size of the pool grows. In our model, a firm…
Pricing and Mitigation of Counterparty Credit Exposures
We analyze the market price of counterparty risk and develop an arbitrage-free pricing valuation framework, inclusive of collateral mitigation. We show that the adjustment is given by the sum of…
Optimal Investment under Information Driven Contagious Distress
TLDR
A dynamic optimization framework to analyze optimal portfolio allocations within an information driven contagious distress model and shows that the optimal investment strategies depend on the gradient of value functions, recursively linked to each other via the distress states.
LARGE PORTFOLIO ASYMPTOTICS FOR LOSS FROM DEFAULT
We prove a law of large numbers for the loss from default and use it for approximating the distribution of the loss from default in large, potentially heterogeneous portfolios. The density of the…
The Annals of Applied Probability , To Appear DEFAULT CLUSTERING IN LARGE PORTFOLIOS : TYPICAL EVENTS By
We develop a dynamic point process model of correlated default timing in a portfolio of firms, and analyze typical default profiles in the limit as the size of the pool grows. In our model, a firm…
Credit Portfolio Risk Evaluation based on the Pair Copula VaR Models
TLDR
The empirical study which takes the publicly traded companies in Shanghai and Shenzhen stock exchanges shows that the Clayton copula with Canonical vine structure is the most appropriate function to describe the high dimensional low tail dependency structure, and the Monte Carlo simulation result proves that the pair copula VaR model can accurately measure the credit portfolio risk both in calm period and crisis period.
...
...

References

SHOWING 1-10 OF 29 REFERENCES
Large portfolio losses: A dynamic contagion model
Using particle system methodologies we study the propagation of financial distress in a network of firms facing credit risk. We investigate the phenomenon of a credit crisis and quantify the losses…
Cyclical correlations , credit contagion , and portfolio losses
We model aggregate credit losses on large portfolios of financial positions contracted with firms subject to both cyclical default correlation and direct default contagion processes. Cyclical…
Large portfolio losses
TLDR
A large-deviations approximation of the tail distribution of total financial losses on a portfolio consisting of many positions is provided, which may be useful in allocating exposure limits, and inallocating risk capital across different lines of business.
VaR and expected shortfall in portfolios of dependent credit risks: Conceptual and practical insights
A Top-Down Approach to Multi-Name Credit
TLDR
It is shown that a thinning process, which allocates the portfolio intensity to constituents, uniquely exists and is a probabilistic model for the next-to-default, and a formula for the constituent default probability is derived in terms of thethinning process and the portfoliointensity.
PRICING AND HEDGING OF PORTFOLIO CREDIT DERIVATIVES WITH INTERACTING DEFAULT INTENSITIES
We consider reduced-form models for portfolio credit risk with interacting default intensities. In this class of models default intensities are modeled as functions of time and of the default state…
Dynamic hedging of synthetic CDO tranches with spread risk and default contagion
A comparative analysis of current credit risk models
Some Applications and Methods of Large Deviations in Finance and Insurance
In these notes, we present some methods and applications of large deviations to finance and insurance. We begin with the classical ruin problem related to the Cramer's theorem and give en extension…
Quantitative Risk Management: Concepts, Techniques, and Tools
This book provides the most comprehensive treatment of the theoretical concepts and modelling techniques of quantitative risk management. Whether you are a financial risk analyst, actuary, regulator…
...
...