Large portfolio losses: A dynamic contagion model

By P. Pra, W. Runggaldier, E. Sartori, M. Tolotti. 2007

74 citations recorded by the source corpus.

Using particle system methodologies we study the propagation of financial distress in a network of firms facing credit risk. We investigate the phenomenon of a credit crisis and quantify the losses that a bank may suffer in a large credit portfolio. Applying a large deviation principle we compute the limiting distributions of the system and determine the time evolution of the credit quality indicators of the firms, deriving moreover the dynamics of a global financial health indicator. We finally describe a suitable version of the "Central Limit Theorem" useful to study large portfolio losses. Simulation results are provided as well as applications to portfolio loss distribution analysis.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/c049aed7383be980d6ad8f8b69d4f1d7db55d90d

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Citations in the corpus

Mean Field Analysis of Neural Networks: A Law of Large Numbers (2018, methodology): “Weak convergence analysis has been widely used in other fields (for example, see [18], [19], [12], [13], [14], [6], and [23] for a non-exhaustive list).”
Particle systems with singular interaction through hitting times: Application in systemic risk modeling (2017, methodology): “he system at a given point in time. Analysis of this kind is often carried out in the context of losses due to defaults in a large portfolio, see, e.g., [DDD04], [GSSS15], [BHH+11], [CFS15], [Hor07], [PRST09], and the references therein. S. Nadtochiy is partially supported by the NSF grant DMS-14118”
Default clustering in large portfolios: Typical events. (2011, background): “In [3] and [4], a constituent intensity is a function of the current default rate in the pool.”
$N$-player games and mean-field games with absorption (2016, background): “[11], where the effect of defaults on the survivors is permanent.”
Mean field analysis of neural networks: A central limit theorem (2018, methodology): “Weak convergence analysis has been widely used in other fields (for example, see [14], [15], [5], [6], [7], [4], and [17] for a non-exhaustive list).”