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Deutsche Bundesbank, Forschungszentrum, Frankfurt am Main >
Discussion Paper Series 2: Banking and Financial Studies, Deutsche Bundesbank >
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http://hdl.handle.net/10419/52132
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| Title: | | A hierarchical Archimedean copula for portfolio credit risk modelling  |
| Authors: | | Puzanova, Natalia |
| Issue Date: | | 2011 |
| Series/Report no.: | | Discussion Paper Series 2: Banking and Financial Studies 2011,14 |
| Abstract: | | I introduce a novel, hierarchical model of tail dependent asset returns which can be particularly useful for measuring portfolio credit risk within the structural framework. To allow for a stronger dependence within sub-portfolios than between them, I utilise the concept of nested Archimedean copulas, but modify the nesting procedure to ensure the compatibility of copula generators by construction. This makes sampling straightforward. Moreover, I provide details on a particular specification based on a gamma mixture of powers. This model allows for lower tail dependence, resulting in a more conservative credit risk assessment than a comparable Gaussian model. I illustrate the extent of model risk when calculating VaR or Expected Shortfall for a credit portfolio. |
| Subjects: | | portfolio credit risk nested Archimedean copula tail dependence hierarchical dependence structure |
| JEL: | | C46 C63 G21 |
| ISBN: | | 978-3-86558-755-8 |
| Document Type: | | Working Paper |
| Appears in Collections: | | Discussion Paper Series 2: Banking and Financial Studies, Deutsche Bundesbank
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