Correlated risks vs contagion in stochastic transition models
Patrick Gagliardini (patrick.gagliardini@usi.ch) and
Christian Gourieroux
Journal of Economic Dynamics and Control, 2013, vol. 37, issue 11, 2241-2269
Abstract:
This paper studies the problem of disentangling risk correlation and contagion in a set of individual binary processes. The two admissible values correspond to bad and good risk states of an individual. The risk correlation is captured by introducing a dynamic frailty, whereas the contagion passes through the effect of the lagged number of individuals in the bad risk state. We study carefully the dynamic properties of the joint process. Then, we focus on the limiting case of large populations (portfolios). The difficulty to identify risk correlation and contagion in finite samples is illustrated by means of Monte-Carlo simulations.
Keywords: Frailty; Systematic risk; Contagion; INAR model; Granularity adjustment (search for similar items in EconPapers)
JEL-codes: C23 G12 (search for similar items in EconPapers)
Date: 2013
References: Add references at CitEc
Citations: View citations in EconPapers (4)
Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0165188913001309
Full text for ScienceDirect subscribers only
Related works:
Working Paper: Correlated Risks vs Contagion in Stochastic Transition Models (2012) 
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:37:y:2013:i:11:p:2241-2269
DOI: 10.1016/j.jedc.2013.05.016
Access Statistics for this article
Journal of Economic Dynamics and Control is currently edited by J. Bullard, C. Chiarella, H. Dawid, C. H. Hommes, P. Klein and C. Otrok
More articles in Journal of Economic Dynamics and Control from Elsevier
Bibliographic data for series maintained by Catherine Liu (repec@elsevier.com).