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arXiv · 1304.1420

Fluctuation Analysis for the Loss From Default

Konstantinos Spiliopoulos·Justin A. Sirignano·Kay Giesecke
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Abstract

We analyze the fluctuation of the loss from default around its large portfolio limit in a class of reduced-form models of correlated firm-by-firm default timing. We prove a weak convergence result for the fluctuation process and use it for developing a conditionally Gaussian approximation to the loss distribution. Numerical results illustrate the accuracy and computational efficiency of the approximation.

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Konstantinos Spiliopoulos, Justin A. Sirignano, Kay Giesecke. 2015-02-18. Fluctuation Analysis for the Loss From Default. https://arxiv.org/abs/1304.1420

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