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Large Portfolio Losses: A Dynamic Contagion Model
Year Of Publication: 2009
Month Of Publication: January
Pages: 50
Download Count: 4
View Count: 1745
Comment Num: 0
Language: English
Source: working paper
Who Can Read: Free
Date: 5-1-2011
Publisher: Administrator
Summary
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 that a bank may suffer in a large credit portfolio. Applying a large deviation principle we compute the limiting distributions of the system and determine the time evolution of the credit quality indicators of the firms, deriving moreover the dynamics of a global financial health indicator. We finally describe a suitable version of the “Central Limit Theorem” useful to study large portfolio losses. Simulation results are provided as well as applications to portfolio loss distribution analysis.
This document is published in Annals of Applied Probability (volume 19, number 1) 2009, 347-394.
Author(s)
Runggaldier, Wolfgang J. Sign in to follow this author
Sartori, Elena Sign in to follow this author
Tolotti, Marco Sign in to follow this author
Pra, P. Dai Sign in to follow this author
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