Heterogeneous T-Copula Implementation in a Credit Portfolio Model

20 Pages Posted: 20 Jan 2017

Date Written: January 16, 2017

Abstract

A flexible way to incorporate heterogeneous tail-dependency into dependency modeling based on a recently proposed modification of the t-copula is presented and applied to a realistic credit portfolio. The heterogeneous t-copula is assumed for the underlying multivariate factor model and it is shown that the capital allocation will change significantly once heterogeneity is introduced.

Keywords: Tail-dependency, heterogeneity, t-copula, credit portfolio, capital allocation

JEL Classification: G21, C60, D80

Suggested Citation

Binnenhei, Carsten and Overbeck, Ludger, Heterogeneous T-Copula Implementation in a Credit Portfolio Model (January 16, 2017). Available at SSRN: https://ssrn.com/abstract=2901616 or http://dx.doi.org/10.2139/ssrn.2901616

Carsten Binnenhei

DGZ-DekaBank ( email )

Mainzer Landstr. 16
D-60325 Frankfurt
Germany

Ludger Overbeck (Contact Author)

University of Giessen ( email )

Institut of Mathematics
Giessen, 35394
Germany

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