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COMPARISON OF DEPENDENCE IN FACTOR MODELS WITH APPLICATION TO CREDIT RISK PORTFOLIOS

Published online by Cambridge University Press:  18 December 2007

Michel Denuit  and
Esther Frostig
Michel Denuit
Affiliation:
Institut de Sciences Actuarielles & Institut de Statistique Université Catholique de LouvainLouvain-la-Neuve, Belgium E-mail: michel.denuit@uclouvain.be
Esther Frostig
Affiliation:
Department of StatisticsUniversity of HaifaHaifa, Israel E-mail: frostig@stat.haifa.ac.il
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Abstract

This article considers portfolio credit risk models of factor type. The dependence between the individual defaults is driven by a small number of systematic factors. The present work aims to investigate the effect of increasing the strength of the dependence between systematic factors on the default indicators in standard credit risk models. The intensity of the dependence is measured by means of appropriate multivariate stochastic orderings, based on the comparison of supermodular and ultramodular functions.

Type
Research Article
Information
Probability in the Engineering and Informational Sciences , Volume 22 , Issue 1 , January 2008 , pp. 151 - 160
Copyright
Copyright © Cambridge University Press 2008

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References

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