Default dependence in the insurance and banking sectors: A copula approach

Xuan Zhang, Minjoo Kim, Cheng Yan and Yang Zhao

Journal of International Financial Markets, Institutions and Money, 2024, vol. 91, issue C

Abstract: We employ a time-varying asymmetric copula model that combines the generalized autoregressive score model with the generalized hyperbolic skewed t copula to capture the dynamics and asymmetry of default dependence between insurers and banks. We identify the term structure of default dependence between these two sectors. The short-term and long-term dependence of default risk rise and converge during financial crises. We explore the determinants of the time-series variation in default dependence. While traditional macro variables can explain only a small portion of the variation in default dependence, we find a significant negative correlation between default dependence and global geopolitical risk.

Keywords: Insurers; Probability of default; Default dependence; Copula; Determinants (search for similar items in EconPapers)
JEL-codes: G22 G33 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:91:y:2024:i:c:s1042443123001798

DOI: 10.1016/j.intfin.2023.101911

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