A Cash Flow Based Multi-Period Credit Portfolio Model with Dynamic Default Threshold
Date Issued
2007
Date
2007
Author(s)
Su, Yu-Hui
DOI
en-US
Abstract
Most existing studies on portfolio credit analysis adopt reduced form approach or multivariate extreme value theories. Alternatively, this paper proposes an integrated approach to incorporate default correlation and default threshold dynamics into a multi-period structural model. A cash flow based credit model that has a factor structure and the factor copula, a conditional independent framework, are combined to analyze the credit risk of a corporate credit portfolio. To address the issue that Merton type structural models underestimate both short-term credit spread and safe bond credit spread, we suggest employing a dynamic default threshold to account for investors’ imperfect information on the threshold. The proposed approach differs from most existing literatures in that it models the risk structure dynamics and the endogenous portfolio recovery (loss) rate. The model can be applied to valuation of a wide range of structured credit products and credit risk management.
Subjects
多期信用風險模型
現金流量
因子關聯結構
資產組合損失
動態違約門檻
Multi-Period Credit Model
Cash Flow
Factor Copula
Portfolio Loss
Dynamic Default Threshold
Type
thesis
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