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An autoregressive conditional duration model of credit‐risk contagion

Sergio M. Focardi (The Intertek Group, Paris, France)
Frank J. Fabozzi (Yale School of Management, New Hope, Pennsylvania, USA)

Journal of Risk Finance

ISSN: 1526-5943

Article publication date: 1 July 2005

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2801

Abstract

Purpose

This paper seeks to discuss a modeling tool for explaining credit‐risk contagion in credit portfolios.

Design/methodology/approach

Presents a “collective risk” model that models the credit risk of a portfolio, an approach typical of insurance mathematics.

Findings

ACD models are self‐exciting point processes that offer a good representation of cascading phenomena due to bankruptcies. In other words, they model how a credit event might trigger other credit events. The model herein discussed is proposed as a robust global model of the aggregate loss of a credit portfolio; only a small number of parameters are required to estimate aggregate loss.

Originality/value

Discusses a modeling tool for explaining credit‐risk contagion in credit portfolios.

Keywords

Citation

Focardi, S.M. and Fabozzi, F.J. (2005), "An autoregressive conditional duration model of credit‐risk contagion", Journal of Risk Finance, Vol. 6 No. 3, pp. 208-225. https://doi.org/10.1108/15265940510599829

Publisher

:

Emerald Group Publishing Limited

Copyright © 2005, Emerald Group Publishing Limited