Concurrent credit portfolio losses

Sicking, Joachim; Guhr, Thomas LSF; Schäfer, Rudi

We consider the problem of concurrent portfolio losses in two non-overlapping credit portfolios. In order to explore the full statistical dependence structure of such portfolio losses, we estimate their empirical pairwise copulas. Instead of a Gaussian dependence, we typically find a strong asymmetry in the copulas. Concurrent large portfolio losses are much more likely than small ones. Studying the dependences of these losses as a function of portfolio size, we moreover reveal that not only large portfolios of thousands of contracts, but also medium-sized and small ones with only a few dozens of contracts exhibit notable portfolio loss correlations. Anticipated idiosyncratic effects turn out to be negligible. These are troublesome insights not only for investors in structured fixed-income products, but particularly for the stability of the financial sector.

Cite

Citation style:
Sicking, J., Guhr, T., Schäfer, R., 2018. Concurrent credit portfolio losses. https://doi.org/10.1371/journal.pone.0190263
Could not load citation form.

Rights

Use and reproduction:
This work may be used under a
CC BY 4.0 LogoCreative Commons Attribution 4.0 License (CC BY 4.0)
.

Export