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Activity Number:
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504
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Type:
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Contributed
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Date/Time:
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Wednesday, August 3, 2016 : 8:30 AM to 10:20 AM
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Sponsor:
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Business and Economic Statistics Section
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Abstract #320249
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View Presentation
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Title:
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Asymptotic Expansion of One-Factor Merton Models with Non-Gaussian and Serially Correlated Innovations
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Author(s):
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Takayuki Shiohama*
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Companies:
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Tokyo University of Science
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Keywords:
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asset correlation ;
credit risk ;
Edgeworth expansion ;
probability of default ;
single risk factor model
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Abstract:
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The one-factor Merton model in the context of CreditMetrics is specialized by a single factor common to all counterparties. We extend the structural credit risk model to a model that includes underlying single risk factor and issuer-specific process have non-Gaussian and serially correlated asset returns. By using a standard Edgeworth expansion, we arrive at the closed-form analytic expressions for the default rate distribution. We also provide estimators of the parameters of the asset value process. Our empirical results illustrate the non-negligible effects of the skewness and kurtosis of the distributions on the systematic risk of credit portfolio risk evaluations.
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Authors who are presenting talks have a * after their name.
