poster: POSTER SESSION: A model of infectious defaults with immunization
speaker: Gianluca Farinaspeaker: Rosella Giacometti
abstract: This paper introduces a new model that takes inspiration from the approach of Davis and Lo (2001) but differentiates from it by relaxing the homogeneous assumption and by introducing few restrictions on the shape of the infection mechanism that allow for a good level of tractability. In particular, the contagion mechanism proposed is the result of two independent components: an infection attempt generated by defaulting firms and a failed defense from healthy ones. We provide an efficient recursive algorithm for the portfolio loss distribution similar, in spirit, to the one commonly used for CID (conditionally independent) models. A version of the model with a simplified parameter structure is then applied to the problem of pricing and hedging CDO instruments and its performance is compared to the standard one factor Gaussian model.
timetable:
Thu 28 Jan, 14:00 - 15:00,
<< Go back