An exponential model for dependent defaults

Kay Giesecke

No 2002,52, SFB 373 Discussion Papers from Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes

Abstract: A thorough understanding of the joint default behavior of credit-risky securities is essential for credit risk measurement as well as the valuation of multi-name credit derivatives and Collateralized Debt Obligations. In this paper we study a simple and tractable intensity-based model for correlated defaults, in which unpredictable default arrival times are jointly exponentially distributed. Since all critical results are given in closedform, the model can be easily mplemented. The efficient simulation of dependent default times for pricing and risk management purposes is straightforward as well. Parameter calibration relies on readily available market data as well as data and figures provided by rating agencies and credit risk management solutions.

Keywords: simulation; correlated defaults; multivariate exponential model (search for similar items in EconPapers)
JEL-codes: G12 G13 (search for similar items in EconPapers)
Date: 2002
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Citations: View citations in EconPapers (3)

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