Concurrent Credit Portfolio Losses

Joachim Sicking, Thomas Guhr and Rudi Sch\"afer

Papers from arXiv.org

Abstract: We consider the problem of concurrent portfolio losses in two non-overlapping credit portfolios. In order to explore the full statistical dependence structure of such portfolio losses, we estimate their empirical pairwise copulas. Instead of a Gaussian dependence, we typically find a strong asymmetry in the copulas. Concurrent large portfolio losses are much more likely than small ones. Studying the dependences of these losses as a function of portfolio size, we moreover reveal that not only large portfolios of thousands of contracts, but also medium-sized and small ones with only a few dozens of contracts exhibit notable portfolio loss correlations. Anticipated idiosyncratic effects turn out to be negligible. These are troublesome insights not only for investors in structured fixed-income products, but particularly for the stability of the financial sector.

Date: 2016-04, Revised 2017-01
New Economics Papers: this item is included in nep-pke and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1604.06917

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