Conservative Estimation of Default Rate Correlations

Bernd Rosenow and Rafael Weißbach
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Bernd Rosenow: Universität zu Köln
Rafael Weißbach: Universität Dortmund

A chapter in Practical Fruits of Econophysics, 2006, pp 272-276 from Springer

Abstract: Summary The risk of a credit portfolio depends crucially on correlations between the probability of default (PD) in different economic sectors. We present statistical evidence that a (one-) factorial model is sufficient to describe PD correlations, and suggest a method of parameter estimation which avoids in a controlled way the underestimation of correlation risk.

Keywords: Large Eigenvalue; Bank Risk; Credit Portfolio; Cross Correlation Matrix; Residual Time Series (search for similar items in EconPapers)
Date: 2006
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-4-431-28915-9_49

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DOI: 10.1007/4-431-28915-1_49

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