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.
Publié le : 2009-02-15
Classification:
Credit contagion,
credit crisis,
interacting particle systems,
large deviations,
large portfolio losses,
mean field interaction,
nonreversible Markov processes,
phase transition,
60K35,
91B70
@article{1235140342,
author = {Dai Pra, Paolo and Runggaldier, Wolfgang J. and Sartori, Elena and Tolotti, Marco},
title = {Large portfolio losses: A dynamic contagion model},
journal = {Ann. Appl. Probab.},
volume = {19},
number = {1},
year = {2009},
pages = { 347-394},
language = {en},
url = {http://dml.mathdoc.fr/item/1235140342}
}
Dai Pra, Paolo; Runggaldier, Wolfgang J.; Sartori, Elena; Tolotti, Marco. Large portfolio losses: A dynamic contagion model. Ann. Appl. Probab., Tome 19 (2009) no. 1, pp. 347-394. http://gdmltest.u-ga.fr/item/1235140342/