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Events
Minisymposium KREDITRISIKOMODELLIERUNG

Universität Leipzig

Ziegenledersaal

seminar

15.07.04

Minisymposium KREDITRISIKOMODELLIERUNG

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Previous Events


15.07.04	Wolfgang Schmidt (Hochschule für Bankwirtschaft Frankfurt) Default Swaps and Hedging of Credit Baskets We investigate the pricing of basket cedit derivatives and their hedging with single name credit default swaps (CDS). The market in credit default swaps quotes fair insurance premiums whose dynamics is the antural starting point of our model. Pricing basket credit derivatives requires a model for the dependencies between the default times. In case of a pure jump filtration, dependencies are characterized by default implied spread changes. In this setup we derive a simple system of integral equations involving the notional amounts of the dynamic hedge positions, the price and the spread of a basket derivative. We provide some numerical examples of explicit hedging strategies and valuations of first-to-default baskets illustrating the approach.
15.07.04	Ulrich Horst (Humboldt-Universität Berlin) Stochastic Cascades, Credit Contagion and Large Portfolio Losses We analyze an interactive model of credit ratings where external shocks, initially affecting only a small number of firms, spread by a contagious chain reaction to the entire economy. Counterparty relationships along with discrete adjustments of credit ratings generate a transition mechanism that allows the financial distress of one firm to spill over to its business partners. Such as contagious infectious of financial distress constitutes a source of intrinsic risk for large portfolios of credit sensitive securities that cannot be "diversified away". We provide a complete characterization of the fluctuations of credit ratings in large economies when adjustments follow a threshold rule. We also analyze the effects of downgrading cascades on aggregate losses of credit portfolios. We show that the loss distribution has a power-law tail if the interaction between different companies is strong enough.

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Katharina Matschke

MPI for Mathematics in the Sciences Contact via Mail