Dynamic Model of Portfolio Credit Risk With Pure Birth Process

• Main Authors: Chun-kai Tseng, 曾俊凱
• Other Authors: 李賢源
• Format: Others
• Language: zh-TW
• Published: 2008
• Online Access: http://ndltd.ncl.edu.tw/handle/84582056140788836052

碩士 === 國立臺灣大學 === 財務金融學研究所 === 96 === We wish to provide a both simple and analytically tractable dynamic model of portfolio credit risk, as an attractive alternative model of traditional Gaussian Copula model. In our model, the default intensity is governed by a deterministic drift and an impulse, where the impulse follows a pure birth process and the impulse intensity will increase from time to time. This impulse caused by the macroeconomics phenomena plays a similar role of the correlation factors of Gaussian Copula model. This dynamic model could not only accurately fit the term structure of the CDS spread but also is useful in the valuation of CDO tranche spreads of different maturities. Furthermore, our model include more economical sense and empirical phenomena than traditional Gaussian Copula approach; for example, as the default environment worsen, the default probability of the companies of the portfolio increase, and the default correlation rise as well. Finally, this dynamic model of portfolio credit risk will provide us a straight forward and analytical tractable way to value other portfolio credit derivatives, such as forward CDOs.