Correlation Structures of Correlated Binomial Models and Implied Default Distribution

S. Mori, K. Kitsukawa and M. Hisakado

Papers from arXiv.org

Abstract: We show how to analyze and interpret the correlation structures, the conditional expectation values and correlation coefficients of exchangeable Bernoulli random variables. We study implied default distributions for the iTraxx-CJ tranches and some popular probabilistic models, including the Gaussian copula model, Beta binomial distribution model and long-range Ising model. We interpret the differences in their profiles in terms of the correlation structures. The implied default distribution has singular correlation structures, reflecting the credit market implications. We point out two possible origins of the singular behavior.

Date: 2006-09, Revised 2008-09
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Citations: View citations in EconPapers (3)

Published in J. Phys. Soc. Jpn. 77 (2008) 114802 (7 pages)

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