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Modelling cascading effects for systemic risk: Properties of the Freund copula

Modelling cascading effects for systemic risk: Properties of the Freund copula AbstractWe consider a dependent lifetime model for systemic risk, whose basic idea was for the first time presented by Freund. This model allows to model cascading effects of defaults for arbitrarily many economic agents. We study in particular the pertaining bivariate copula function. This copula does not have a closed form and does not belong to the class of Archimedean copulas, either.We derive some monotonicity properties of it and show how to use this copula for modelling the cascade effect implicitly contained in observed CDS spreads. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Dependence Modeling de Gruyter

Modelling cascading effects for systemic risk: Properties of the Freund copula

Dependence Modeling , Volume 7 (1): 21 – Feb 1, 2019

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Publisher
de Gruyter
Copyright
© by Sándor Guzmics, Georg Ch. Pflug, published by De Gruyter
ISSN
2300-2298
eISSN
2300-2298
DOI
10.1515/demo-2019-0002
Publisher site
See Article on Publisher Site

Abstract

AbstractWe consider a dependent lifetime model for systemic risk, whose basic idea was for the first time presented by Freund. This model allows to model cascading effects of defaults for arbitrarily many economic agents. We study in particular the pertaining bivariate copula function. This copula does not have a closed form and does not belong to the class of Archimedean copulas, either.We derive some monotonicity properties of it and show how to use this copula for modelling the cascade effect implicitly contained in observed CDS spreads.

Journal

Dependence Modelingde Gruyter

Published: Feb 1, 2019

References