Asia-Pacific Financial Markets

, Volume 19, Issue 1, pp 43–62 | Cite as

Modeling of Contagious Credit Events and Risk Analysis of Credit Portfolios

  • Suguru Yamanaka
  • Masaaki Sugihara
  • Hidetoshi Nakagawa
Article

Abstract

We present a new model of the occurence of credit events such as rating changes and defaults for risk analyses of some portfolio credit derivatives. The framework of our model is based on a so-called top-down approach. Specifically, we first consider modeling the point process of each type of credit event in the whole economy using a self-exciting intensity process. Next, we characterize the point processes of credit events in the underlying sub-portfolio using random thinning processes specified by the distribution of credit ratings in the sub-portfolio. One of the main features of our model is that the model can capture credit risk contagion simultaneously among several credit portfolios. We present a credit event simulation algorithm based on our model and illustrate an application of the model to risk analyses of loan portfolios.

Keywords

Credit risk Rating change Self-exciting intensity model State-dependent Top-down approach 

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References

  1. Azizpour, S., Giesecke, K., & Kim, B. (2010). Premia for correlated default risk. Journal of Economic Dynamics and Control, forthcoming, from http://www.stanford.edu/dept/MSandE/cgi-bin/people/faculty/giesecke/giesecke.php.
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Copyright information

© Springer Science+Business Media, LLC. 2011

Authors and Affiliations

  • Suguru Yamanaka
    • 1
  • Masaaki Sugihara
    • 1
  • Hidetoshi Nakagawa
    • 2
  1. 1.Graduate School of Information Science and TechnologyUniversity of TokyoTokyoJapan
  2. 2.Graduate School of International Corporate StrategyHitotsubashi UniversityTokyoJapan

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