An autoregressive conditional duration model of credit‐risk contagion

Sergio M. Focardi and Frank J. Fabozzi

Journal of Risk Finance, 2005, vol. 6, issue 3, 208-225

Abstract: Purpose - This paper seeks to discuss a modeling tool for explaining credit‐risk contagion in credit portfolios. Design/methodology/approach - Presents a “collective risk” model that models the credit risk of a portfolio, an approach typical of insurance mathematics. Findings - ACD models are self‐exciting point processes that offer a good representation of cascading phenomena due to bankruptcies. In other words, they model how a credit event might trigger other credit events. The model herein discussed is proposed as a robust global model of the aggregate loss of a credit portfolio; only a small number of parameters are required to estimate aggregate loss. Originality/value - Discusses a modeling tool for explaining credit‐risk contagion in credit portfolios.

Keywords: Credit; Financial risk (search for similar items in EconPapers)
Date: 2005
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jrfpps:15265940510599829

DOI: 10.1108/15265940510599829

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