We present a class of flexible and tractable static factor models for the term structure of joint default probabilities, the factor copula models. These high-dimensional models remain parsimonious with paircopula constructions, and nest many standard models as special cases. The loss distribution of a portfolio of contingent claims can be exactly and efficiently computed when individual losses are discretely supported on a finite grid. Numerical examples study the key features affecting the loss distribution and multi-name credit derivatives prices. An empirical exercise illustrates the flexibility of our approach by fitting credit index tranche prices.
@article{bwmeta1.element.doi-10_1515_demo-2017-0022,
author = {Damien Ackerer and Thibault Vatter},
title = {Dependent defaults and losses with factor copula models},
journal = {Dependence Modeling},
volume = {5},
year = {2017},
pages = {375-399},
language = {en},
url = {http://dml.mathdoc.fr/item/bwmeta1.element.doi-10_1515_demo-2017-0022}
}
Damien Ackerer; Thibault Vatter. Dependent defaults and losses with factor copula models. Dependence Modeling, Tome 5 (2017) pp. 375-399. http://gdmltest.u-ga.fr/item/bwmeta1.element.doi-10_1515_demo-2017-0022/