Komárik, András
(Morgan Stanley)
Credit Default Risk Modeling and
Asset Return Correlations
We briefly present a
multi-factor Gaussian copula portfolio model for default risk. The model
assumes three types of systematic factors driving the asset returns, hence the
value of each company. These factors represent the state of the global economy
and the economic conditions of different geographical regions and industries.
The corresponding factor loadings play a key role in the model, as they capture
the correlation structure between the asset returns of different companies and
therefore influence the joint probabilities of default. Higher correlation
between the returns of different companies in a portfolio increases the
likelihood that multiple companies will default simultaneously, thus increasing
the likelihood of extreme losses in the portfolio. Hence, accurately measuring
these correlations is essential for the identification of portfolio risk.
We describe a possible methodology for measuring the correlations
between asset returns of different companies, which can be used for calibrating
the corresponding factor loadings. The approach relies upon single-name CDS
spread data. We will also analyze of the structure of correlations obtained
using this methodology.
The talk is held in English!
Az előadás angol nyelven lesz megtartva!
Date: Nov 14, Tuesday 4:15pm
Place: BME, Building „Q”, Room QBF13