Frailty Correlated Default
- Date: 05/07/2007
Darrell Duffie (Stanford University)
University of British Columbia
We analyze portfolio credit risk in light of dynamic "frailty," in the
form of incompletely observed covariates. Common dependence by firms on
unobservable time-varying default covariates is estimated to cause
large changes in conditional mean default rates above and beyond those
predicted by observable factors, and large increases in the fatness of
the tails of the distributions of portfolio default losses for U.S.
corporates during 1980-2004.
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