Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5076304 | Insurance: Mathematics and Economics | 2016 | 24 Pages |
Abstract
In this paper we study the loss given default (LGD) of a low default portfolio (LDP), assuming that there is weak credit contagion among the obligors. We characterize the credit contagion by a Sarmanov dependence structure of the risk factors that drive the obligors' default, where the risk factors are assumed to be heavy tailed. From a new perspective of asymptotic analysis, we derive a limiting distribution for the LGD. As a consequence, an approximation for the entire distribution, in contrast to just the tail behavior, of the LGD is obtained. We show numerical examples to demonstrate the limiting distribution. We also discuss possible applications of the limiting distribution to the calculation of moments and the Value at Risk (VaR) of the LGD.
Keywords
Related Topics
Physical Sciences and Engineering
Mathematics
Statistics and Probability
Authors
Li Wei, Zhongyi Yuan,