Heterogeneous T-Copula Implementation in a Credit Portfolio Model
20 Pages Posted: 20 Jan 2017
Date Written: January 16, 2017
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: Suggested Citation