Abstract
We set up a structural model to study credit risk for a portfolio containing several or many credit contracts. The model is based on a jump-diffusion process for the risk factors, i.e. for the company assets. We also include correlations between the companies. We discuss that models of this type have much in common with other problems in statistical physics and in the theory of complex systems. We study a simplified version of our model analytically. Furthermore, we perform extensive numerical simulations for the full model. The observables are the loss distribution of the credit portfolio, its moments and other quantities derived thereof. We compile detailed information about the parameter dependence of these observables. In the course of setting up and analyzing our model, we also give a review of credit risk modeling for a physics audience. (c) 2007 Elsevier B.V. All rights reserved.
| Original language | English |
|---|---|
| Pages (from-to) | 533-569 |
| Journal | Physica A: Statistical Mechanics and its Applications |
| Volume | 383 |
| Issue number | 2 |
| DOIs | |
| Publication status | Published - 2007 |
Bibliographical note
The information about affiliations in this record was updated in December 2015.The record was previously connected to the following departments: Mathematical Physics (Faculty of Technology) (011040002)
Subject classification (UKÄ)
- Physical Sciences
Free keywords
- stochastic processes
- credit risk
- econophysics