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Incorporating Contagion in Portfolio Credit Risk Models Using Network Theory
Joint Authors
Anagnostou, Ioannis
Sourabh, Sumit
Kandhai, Drona
Source
Issue
Vol. 2018, Issue 2018 (31 Dec. 2018), pp.1-15, 15 p.
Publisher
Hindawi Publishing Corporation
Publication Date
2018-01-08
Country of Publication
Egypt
No. of Pages
15
Main Subjects
Abstract EN
Portfolio credit risk models estimate the range of potential losses due to defaults or deteriorations in credit quality.
Most of these models perceive default correlation as fully captured by the dependence on a set of common underlying risk factors.
In light of empirical evidence, the ability of such a conditional independence framework to accommodate for the occasional default clustering has been questioned repeatedly.
Thus, financial institutions have relied on stressed correlations or alternative copulas with more extreme tail dependence.
In this paper, we propose a different remedy—augmenting systematic risk factors with a contagious default mechanism which affects the entire universe of credits.
We construct credit stress propagation networks and calibrate contagion parameters for infectious defaults.
The resulting framework is implemented on synthetic test portfolios wherein the contagion effect is shown to have a significant impact on the tails of the loss distributions.
American Psychological Association (APA)
Anagnostou, Ioannis& Sourabh, Sumit& Kandhai, Drona. 2018. Incorporating Contagion in Portfolio Credit Risk Models Using Network Theory. Complexity،Vol. 2018, no. 2018, pp.1-15.
https://search.emarefa.net/detail/BIM-1134954
Modern Language Association (MLA)
Anagnostou, Ioannis…[et al.]. Incorporating Contagion in Portfolio Credit Risk Models Using Network Theory. Complexity No. 2018 (2018), pp.1-15.
https://search.emarefa.net/detail/BIM-1134954
American Medical Association (AMA)
Anagnostou, Ioannis& Sourabh, Sumit& Kandhai, Drona. Incorporating Contagion in Portfolio Credit Risk Models Using Network Theory. Complexity. 2018. Vol. 2018, no. 2018, pp.1-15.
https://search.emarefa.net/detail/BIM-1134954
Data Type
Journal Articles
Language
English
Notes
Includes bibliographical references
Record ID
BIM-1134954