 The loss given default of a low-default portfolio with weak contagionLi Wei and Zhongyi Yuan Insurance: Mathematics and Economics, 2016, vol. 66, issue C, 113-123 Abstract: In this paper we study the loss given default (LGD) of a low default portfolio (LDP), assuming that there is weak credit contagion among the obligors. We characterize the credit contagion by a Sarmanov dependence structure of the risk factors that drive the obligors’ default, where the risk factors are assumed to be heavy tailed. From a new perspective of asymptotic analysis, we derive a limiting distribution for the LGD. As a consequence, an approximation for the entire distribution, in contrast to just the tail behavior, of the LGD is obtained. We show numerical examples to demonstrate the limiting distribution. We also discuss possible applications of the limiting distribution to the calculation of moments and the Value at Risk (VaR) of the LGD. Keywords: Asymptotic analysis; Asymptotic (in)dependence; Credit contagion; Default probability; Loss given default; Low-default portfolio; Risk measure; Sarmanov distribution (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:66:y:2016:i:c:p:113-123 DOI: 10.1016/j.insmatheco.2015.10.005 Access Statistics for this article Insurance: Mathematics and Economics is currently edited by R. Kaas, Hansjoerg Albrecher, M. J. Goovaerts and E. S. W. Shiu More articles in Insurance: Mathematics and Economics from Elsevier |
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