Credit Risk Modelling with Shot-Noise Processes

25 Pages Posted: 14 Apr 2010

See all articles by Raquel M. Gaspar

Raquel M. Gaspar

ISEG and Cemapre/REM, Universidade de Lisboa

Thorsten Schmidt

University of Freiburg

Date Written: April 4, 2010

Abstract

In this work we study a form of shot-noise processes which is driven by Levy subordinators. The main focus is on applications to portfolios which are subject to credit risk. We show how to augment an arbitrary model for credit risk (e.g. an ane model) with shot-noise processes. This introduceds clustering of defaults into the original model, which is an important model feature highlighted by the current credit crisis.

Keywords: credit portfolio risk, shot-noise processes, default dependence, affine models, local intensities, calibration, CDO

Suggested Citation

Gaspar, Raquel M. and Schmidt, Thorsten, Credit Risk Modelling with Shot-Noise Processes (April 4, 2010). Available at SSRN: https://ssrn.com/abstract=1588750 or http://dx.doi.org/10.2139/ssrn.1588750

Raquel M. Gaspar (Contact Author)

ISEG and Cemapre/REM, Universidade de Lisboa ( email )

Rua Miguel Lupi, 20
room 510
Lisbon, 1249-078
Portugal

Thorsten Schmidt

University of Freiburg ( email )

Fahnenbergplatz
Freiburg, D-79085
Germany

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